In 2020, ICHRAs (Individual Coverage Health Reimbursement Arrangements) become a choice for employees’ health benefits. Simply put, ICHRAs enable companies to provide tax-free money to their staff for use on or off the Individual Marketplace, popularly known as the “Exchange,” as opposed to providing a conventional group plan.
There has been an increase in interest in the ICHRA among business owners, particularly those of smaller and mid-sized enterprises. By paying for the individual health insurance premiums that employees pay, the ICHRA plan benefit model enables companies of any size to offer health insurance coverage to their employees or specified classes of employees.
Pros and Cons of ICHRA Plans
Pros
- Flexibility
- Cost Control
- Tax Advantage
Cons
- It is relatively new
- Premium Pricing
How does ICHRA Plan Works?
The business owner first decides on the monthly reimbursement amount and creates a structure for it with different prices for different groups, ages, or family sizes. The following step is to inform staff members about their new perk and make sure they know how to make the most of it. Employees then purchase the individual health plan that best suits their needs.
The employer just reimburses the employee after they provide receipts for particular eligible medical expenses or arrange for periodic premium payments. The money is not taxable to the employee as income and is not subject to payroll tax from the employer’s perspective.
Also, the employer can avoid the bother of selecting and managing a group plan, which would come with premium increases and participation rate restrictions.
Step-By- Step for ICHRA Plans
- Choose the start date
- Design Classes for Eligible Employees
- Set Budget and Allowances
- Create legal plans documents
- Educate about new advantages to the employees
- Give employees resources to buy individual health insurance
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