Oscar for Employers

Frequently Asked Questions

• Wait, what is ICHRA?

  • ICHRA means Individual Coverage Health Reimbursement Arrangement. It’s a new type of Health Reimbursement Arrangement (HRA) created in 2020. It’s great because it allows businesses of any size to provide tax-free reimbursements to employees for health insurance premiums and qualified medical expenses.

• So, how does ICHRA work?

  • In most cases, an employer works with a third party (broker and/or ICHRA administration platform) to design and implement their company’s ICHRA. This process typically requires the employer to determine their budget, decide which employees can and cannot participate in the ICHRA, and establish when to launch the new health benefits solution to employees. Once the ICHRA is introduced to the company, employees get to shop for an individual insurance plan on the open market and buy a plan that suits their unique needs. Then, employees seek tax-free reimbursements from their employer each month.

• Who can use ICHRA?

  • Employers of any size can offer an ICHRA so long as they have at least one employee who isn’t a self-employed owner or the spouse of a self-employed owner. If designed correctly, an ICHRA satisfies the Affordable Care Act (ACA) employer mandate for Applicable Large Employers (ALEs). To determine if ICHRA is right for your business, take a look at the official IRS ICHRA regulations or talk to a tax professional.

• Does ICHRA satisfy the Affordable Care Act (ACA) employer mandate for Applicable Large Employers (ALEs)?

  • Yes. If designed correctly, an ICHRA satisfies the Affordable Care Act (ACA) employer mandate for Applicable Large Employers (ALEs). To determine if ICHRA is right for your business, take a look at the official IRS ICHRA regulations or talk to a tax professional.

• Can employers offer both an ICHRA and a traditional group health insurance plan to employees?

  • Hmm, yes and no. Here’s why: Employers can offer an ICHRA to one segment of employees while offering a traditional group plan to a different segment of employees. However, employers are not allowed to offer both an ICHRA and a traditional group plan to the same segment of employees. To determine allowable class distinctions, just refer to official IRS ICHRA regulations or talk to a tax professional.

• What’s the difference between an ICHRA and a traditional HRA?

  • Historically, HRAs were offered as a tax-advantaged supplement to traditional group insurance as a way to cover qualified medical expenses not included in traditional insurance. However, these HRAs did not allow for tax-free reimbursements to apply towards health insurance premiums. New regulations stipulate that with an ICHRA (as well as QSEHRA), an employer can reimburse for both qualified medical expenses, and health insurance premiums.

• What’s the difference between ICHRA and QSEHRA?

  • There are many distinctions between these two types of HRAs, but the two primary distinctions are contribution limits and participation sizes. The Qualified Small Employer HRA (QSEHRA) has limits on how much an employer can reimburse their employees while ICHRA has no limitations on the contribution amount. 

    Additionally, only companies with less than 50 employees can offer a QSEHRA, while an ICHRA can be offered by a company of any size. To understand the complete list of differences between these two types of HRAs, just refer to official IRS regulations or talk to a tax professional.

• Are there limitations to employer contributions with ICHRA?

  • No. There are no limitations here.

• Do ICHRA benefits cover qualified medical expenses?

  • Yes. If the employer chooses to allow reimbursement for such expenses, employees can seek reimbursement. During the ICHRA design stage, employers have a choice whether or not to allow the ICHRA to cover qualified medical expenses. To see a complete list of qualified medical expenses, please refer to official IRS ICHRA regulations or talk to a tax professional.

• How does ICHRA work with Premium Tax Credits?

  • If an employee is offered an ICHRA by their employer, they’re not eligible to receive federal subsidies — even if they don’t choose to participate in the ICHRA. However, in some cases — if the ICHRA allowance is deemed unaffordable — an employee may accept premium tax credits despite being offered an ICHRA. To understand the regulation around ICHRA affordability and premium tax credits, please refer to official IRS regulations or talk to a tax professional.

• Is a third-party administrator (TPA) required for ICHRA management?

  • No, it’s not a legal requirement. That said, it is strongly advised to administer an ICHRA through a third party to ensure compliance with IRS regulations such as HIPAA. To learn more about ICHRA compliance, please refer to official IRS ICHRA regulations or talk to a tax professional.