A Road Map to ICHRAs: Navigating Defined-Contribution Health Insurance Implementation

The new individual coverage health reimbursement arrangement option for employee health insurance (ICHRA, pronounced “ick-ruh”) has employers at an intriguing new crossroads. Not only are those implementing it exiting the highway of traditional group plan administration, but they’re also switching drivers, putting employees at the wheel of a new vehicle that gives them tax-free funds to purchase individual market health insurance.

As you begin your journey toward ICHRA implementation, follow this road map to ensure you have your benefits strategy mapped out and start your employees on a smooth road:

Map Your Route / Engage Your Navigation Assistant

Before getting into the car, you’ll need to determine if an ICHRA is a viable option for your organization.  To do this, you’ll need to compare the cost of individual insurance for your employees to the cost of your current group health plan. This analysis will help you understand if your employees can obtain individual insurance that represents a better value compared to your group plan. Once the initial financial analysis is complete,  you’ll then need to assess the key markets where your employees reside to get a handle on the range of available health insurance options (insurers and plans). If you decide to push the gas and drive down the ICHRA road, you’ll need to create a program strategy.

Having an expert help plan your route and be by your side for every turn in the road means you’ll have sound advice and assistance with program analysis, strategy, and design as well as implementation and navigation, including managing employee communications, decision support during enrollment and administration of the HRAs.

Schedule Your Departure Time

Aligning your ICHRA plan year with your current benefits plan year ensures employees don’t have to make a new election or experience unexpected plan design changes midyear. And since employees are accustomed to looking at their benefits during your Open Enrollment season, maintaining that timing consistency may be helpful when other elements of their benefits package are changing. That said, there may be benefits to choosing an alternative plan year for your ICHRA, including the ability to focus communication and employee attention on only the change to your health insurance offering.

If the ICHRA plan year you chose is not on a calendar year basis, there is no need to worry about your employees’ ability to obtain guaranteed issue coverage on the individual market. ICHRA rules dictate that employees becoming newly eligible for an ICHRA receive a special enrollment period (SEP) that creates a guaranteed issue window outside of the annual open enrollment period. However, after the initial transition, employees will need to shop and enroll in individual coverage during the annual enrollment period. 

Knowing the details of your offering ahead of time is also crucial. Employers must alert employees about their ICHRA offering at least 90 days before the plan year begins (with some exceptions for extenuating circumstances). These notifications must include critical information such as the amount in the HRA fund, the date coverage will begin and whether the offer extends to dependents.

Fuel Up Your Health Reimbursement Arrangements

Employers can tailor HRA contributions based on employee age, family size, and geography. Premiums and plan options for individual market health insurance plans vary from market to market, so you’ll want to evaluate each market where you have offices and then do the math on how much to fund the HRAs.

The ICHRA rule limits how much variation there can be in HRA funding levels across employees. For example, contributions can vary by office location, but not by dependent age or by where employees live. Working with a consultant or other trusted advisor can help you set your contributions to maximize the purchasing power of your employees.

Safety Check: Get Compliant with New Regulations 

As with most other benefit offerings, employers should take steps to fine-tune their ICHRA offering to ensure it complies with the ICHRA regulations set by the IRS and Departments of Labor and Health and Human Services. For example, to avoid penalties under the Affordable Care Act, the funds provided to employees through their HRAs must be enough so that the lowest-cost, silver-level premium available to an employee is no more than about 10 percent of the employee’s household income.

This new option must satisfy the rules laid out by the Affordable Care Act, ERISA, and both personal and corporate tax laws. Preserving the health insurance tax exclusion for your company and your employees may require changes to payroll deductions, consideration of cafeteria plans and other initiatives deep in the weeds of regulatory law. Working with an expert or consultant that understands the interplay of each of these regulatory areas will be critical, as neglecting to be compliant across interrelated tax, health and payroll requirements could trigger financial penalties for you and cause headaches for your employees.

Sync Your Navigation Assistant and Turn On Self-driving Mode

As an employer, you’ll play a pivotal role in giving your employees the resources they need when they’re in the health insurance driver’s seat. Navigating the individual market and choosing the right plan can be overwhelming when going it alone.  However, partnering with a company that has vast individual marketplace knowledge and experience helping participants select and enroll in individual marketplace plans will help optimize the employee journey and give both you and your employees peace of mind.