Breaking down the latest innovation in company-funded health benefits.
What is an ICHRA?
An ICHRA (Individual Coverage Health Reimbursement Arrangement) is a company-funded health benefit that reimburses employees for valid healthcare expenses such as monthly premiums, copays, and other qualified medical expenses, up to the plan allowance.
Similar to how the 401(k) was introduced as an alternative to pensions, ICHRAs shift the paradigm from “defined benefit” to “defined contribution”.
ICHRAs allow employers to give tax-free reimbursements for premiums to employees who enroll in health insurance through the individual marketplace (and Medicare).
This plan allows employers to establish a more affordable and predictable annual healthcare budget and define the healthcare benefit paid to employees.
Originally created under the Trump administration in 2019, ICHRAs were meant to help control costs and address ACA compliance, and became available as of January 2020. Employers of any size can offer an ICHRA if they have one employee who isn’t a self-employed owner or the spouse of a self-employed owner. (For more information, read IRS guidance.)
This new dynamic among America’s workers is fueling a different and very specialized ecosystem that we call “ICHRA-nomics”.
The Rise of ICHRA Adoption
Faced with rising premiums, annual rate hikes, and unpredictability, brokers and employers have been left searching for more affordable benefits solutions.
Enter the ICHRA, taking the risk out of group insurance. Given ICHRA’s flexibility over group health insurance plans, adoption grew nearly 350% by employers of all sizes in the first two years, 2020 – 2021.
Many locations across the country provide individual policies that are more affordable than group policies. According to Ideon, in some of the most populated counties across the country, the 2024 Bronze plan monthly premium for an individual is less expensive by almost 50%.
With an ICHRA employees purchase insurance plans independently and then they are reimbursed, up to a specific amount, by their employer.
Where Things Can Get a Little Tricky
While ICHRAs have been well-received and there is significant emphasis placed on the design and enrollment aspects of them, the accompanying administrative burden can be a roadblock. Every individual employee’s premium must be paid each month. It is cumbersome and time-consuming for an employer, especially a small business, to manage each employee’s reimbursement while maintaining a tax-free status.
Employers are left with a simple question: How do we provide funding to pay various carrier premiums each month for each individual employee?
The Tricky Parts of ICHRA Administration
- Employers can’t simply add an allowance into employees’ paychecks – without proof of reimbursement for specific premium payments, otherwise it will lose its tax-free status.
- Requiring employees to fund premiums upfront creates a poor employee experience. Some employees with ICHRAs may not be able to afford this initial cost.
- The administrative burden of the monthly reimbursement process and paperwork requirements can be overwhelming for both employers and employees.
ICHRA Payment Automation
Addressing the Tricky Parts
Without a manageable process to pay premiums and reimbursements, an ICHRA plan may be completely untenable for an employer. Electronic payment automation allows employers, brokers, and administrators to offer and enhance any ICHRA offering by eliminating the inefficient reimbursement process.
Payment automation, combined with reporting, and regulatory compliance, helps any ICHRA to work like a traditional health benefits plan. It can be used as a standalone product or work in collaboration with your current payroll platform and/or ICHRA administration platform to deliver an efficient, more robust ICHRA offering. So yes, freedom of choice could be just a click away!
With the right tools, employers and employees can enjoy the benefits provided by ICHRAs while eliminating the reimbursement burdens – ultimately, creating an administrative experience that is indistinguishable from that of traditional group health plans.
What does the ICHRA fix look like?
- Automated premium payments without cumbersome paperwork or employee involvement.
- Proper compliance against regulations to ensure “tax-free” status for all reimbursements.
- Open APIs and integration to work with any ICHRA administrator, regardless of platform.
- All eligible premiums easily routed to the appropriate carrier.
- Includes real-time funding reports, so payroll deductions are fast and easy.
- Eliminates the reimbursement burden by combining payments for the entire premium.
How Does ICHRA Payment Automation Work?
Imagine a turnkey solution that is versatile and can easily integrate with an existing administrative platform and help facilitate the funding and reimbursement process. The platform should be sturdy enough to stand independently and control the entire process.
An automatic, self-regulating reimbursement platform is essential for helping brokers solve the administrative and reimbursement burden associated with an ICHRA.
- Automation – Leverage payment automation to eliminate cumbersome paperwork and employee involvement.
- Compliance – Automatically meet substantiation and regulatory requirements with a comprehensive solution.
- Flexibility – Offer multiple payment options to meet carriers’ needs.
- Visibility – Clear reporting, combined with a user-friendly experience, brings a new level of ease to ICHRA administration.
Expand Affordable Healthcare Coverage with ICHRA
ICHRA adoption is on the rise. The cost and flexibility make ICHRAs desirable for employees and employers. Payment automation makes these valuable benefits a reality.
As employers look to leverage ICHRAs to attract talent, administering the regulatory requirements, and managing myriad health payments and reimbursements can be overwhelming for an employer of any size.
Enter ICHRA payment automation platforms that not only manage documentation and regulatory compliance but also automate carrier payments to make ICHRAs consumer friendly. With a solution partner like Premium Payment Manager, ICHRA adoption is more than possible.
Are you looking to eliminate the ICHRA reimbursement burden and provide employers and employees the experience they desire?