ICHRA FAQs

Frequently Asked Questions about ICHRAs

What is an ICHRA?

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is an alternative to offering a traditional group health plan to your employees. It’s a specific account-based health plan that allows employers to provide defined non-taxable reimbursements to employees for qualified medical expenses, including monthly premiums and out-of-pocket costs, like copayments and deductibles. Employees must be enrolled in individual health insurance coverage to use the funds.

What counts as “individual health insurance coverage” for the ICHRA?

To participate in the ICHRA, employees must be covered by individual health insurance. This can be an individual health policy purchased off the Marketplace (referred to as Exchange or on-exchange) or a policy purchased directly from a carrier or using a private exchange (referred to as off-exchange), Medicare Parts A and B, or Medicare Part C.

What are the minimum and maximum employer contribution requirements?

There are none, however, see How does the concept of affordability impact ICHRAs? which may impact your decision of how much to contribute.

How are employer & employee contributions to ICHRA premiums & expenses taxed?

Employer contributions to ICHRAs to cover employee premiums and out of pocket expenses are not subject to payroll taxes – just as employer contributions to group health premiums are not subject to payroll taxes.

Neither the employer nor the employee is taxed on the employer’s ICHRA contribution, regardless of whether it is used on or off exchange.

If an employee picks a plan with a premium that exceeds the employer’s contribution, the excess dollars may be contributed by the employee either post-tax, with their regular dollars, or pre-tax, via a POP (premium-only plan) or other Section 125 cafeteria plan. In order to use pre-tax employee dollars towards premiums, the employee must enroll off-exchange.

Can an employee use an ICHRA to enroll on a spouse’s individual plan?

Yes. An employee who is offered an ICHRA may join a spouse’s existing individual policy, and use the ICHRA to pay for the employee’s portion of the premium. If the ICHRA plan documents allow it, they may use ICHRA dollars to pay for the spouse’s portion of the premium as well.

However, if the ICHRA isn’t extended to the spouse, they would need to enroll through separate enrollment groups so that the ICHRA amount does not pay for the spouse’s portion of the premium.

An ICHRA cannot be used to pay for a spouse’s group health insurance policy.

Can ICHRA dollars be used for other benefits such as dental, vision, accident, indemnity?

Generally, yes. The plan sponsor (employer) may design the ICHRA to cover 1) insurance premiums only or 2) both insurance premiums and qualified medical expenses.

Eligible premiums can include medical, dental, vision and other eligible plans.  Those and other eligible expenses are outlined in IRS Publication 502 (IRC Section 213(d).  Link: 2019 Publication 502 (irs.gov). Please see page 9 for eligible insurance plans. Many types of indemnity plans are excluded.

Can the ICHRA allowance amount be adjusted at any time?

No. The ICHRA plan design is established at the start of a plan year and will remain intact for a full 12 month period. The ICHRA benefit design—specifically the allowance amount—directly impacts employees’ decisions to opt in or out of the benefit.

Frequently Asked Questions about Special Enrollment Periods

What is a special enrollment period (SEP)?

A special enrollment period is a timeframe when individuals can sign up for health insurance. 

Individuals may qualify for a Special Enrollment Period to enroll any time if you’ve had certain life events.

Examples of qualifying life events:

1. Loss of other health coverage

2. Move to new address

3. Getting married or divorced

4. Having a baby, or adopting a child

5. Offered an ICHRA through employer or loss of ICHRA

Depending on the Special Enrollment Period type, you may have 60 days before or 60 days following the event to enroll in a plan. You can enroll in Medicaid or the Children’s Health Insurance Program (CHIP) any time.  Job-based plans must provide a Special Enrollment Period of at least 30 days.

Does being offered an ICHRA qualify for a SEP?

The SEP applies to people who are offered the ICHRA for the first time, but it also applies to employees who either had (or were offered) ICHRA coverage in the past, ceased that coverage (or turned it down), and are then offered it again – either during the employer’s annual enrollment period, or because the employee switches to a different class of employees, which changes the employee’s eligibility for coverage under the ICHRA.

Does losing an ICHRA qualify for a SEP?

Yes, see responses above.

Can I change my plan selection during the regular open enrollment period (OEP)?

Yes, generally you may change your individual health insurance coverage during the individual market’s annual open enrollment period from November 1 through January 15. Some state exchanges may provide additional time to enroll. 

Frequently Asked Questions -Section 125 / Cafeteria Plans / FSAs

What is a Section 125 (cafeteria) plan?

Section 125 plans use pre-tax salary deductions to pay eligible medical expenses. A basic Section 125 premium-only plan (POP) covers premiums for medical insurance and supplemental coverage, such as dental or vision insurance, but a Section 125 cafeteria plan may also offer tax-advantaged benefits such as Health Flexible Spending Arrangements (FSA), which use pre-tax salary deductions to reimburse the cost of medical expenses like co-pays for doctor visits or prescription drugs.

Every dollar that passes through a Section 125 plan via pre-tax salary deductions brings tax savings to both the employee and the employer. The employee saves up to 40% from FICA and income taxes (federal and most state taxes) while to employer saves up to 10% in matching FICA tax, FUTA, and in some cases state unemployment and/or worker compensation tax.

In other words, for every $1,000 used to pay for benefits through a Section 125 plan, an employee could save up to $400 and the employer up to $100 in taxes. Savings can add up quickly when employees use a Section 125 plan to pay for premiums and other benefits.

How do the ICHRA and Section 125 cafeteria plan work together?

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is the newest and most flexible HRA model available. It lets employers forego one-size-fits-all traditional group health plans in favor of reimbursing employees for an individual health insurance plan of their choice. Employers can enhance tax-saving benefits by pairing the ICHRA and a Section 125 cafeteria plan, so that employees choosing off-exchange plans may use pre-tax dollars to make up any portion of their health insurance premium not covered by the ICHRA.

Can an ICHRA participant  deduct  the unfunded balance of their individual health plan from their paycheck via a Section 125 POP plan? 

Yes, the employee can deduct the remaining balance of their individual health plan pre-tax if the employer offers a Section 125 POP (Premium Only Plan).  This will offer both the employer and employee tax savings.  As described in additional detail in these FAQs, this only works for off-exchange individual health plans. An employer can also offer supplemental benefits, such as group dental insurance, that will be paid with pre-tax salary deductions through the Section 125 cafeteria plan.