ICHRA is an acronym that stands for Individual Coverage Health Reimbursement Arrangement. Started in 2020, ICHRA allows businesses of all sizes and administrative structures to reimburse their employees tax-free for healthcare expenses, health insurance premiums, or other qualifying healthcare costs. Employees are reimbursed in the form of monthly allowances from their employers.
An ICHRA offers a variety of benefits for your business, such as high reimbursement limits, greater design flexibility, and control over your health insurance spending and risk. It’s a great option to help your employees get maximum health insurance coverage.
If you’re looking to set up an ICHRA for your business, this step-by-step guide to starting an ICHRA will be very helpful. We’ll discuss all the essential steps of setting up an ICHRA for your business. So, let’s get started!
How to Set Up an ICHRA for Your Business?
Step 1: Choose the Starting Date
You can set up an ICHRA for your business on any date. Most people set their starting date by considering the calendar year and benefit changes. The ICHRA is usually started during the annual open enrollment period (November 1 to December 15), so employees can enroll in an individual health insurance plan to be covered by the ICHRA benefit. However, if you have a large group of employees that need to enroll in an induvial health insurance plan, you can use the SEP (Special Enrollment Period). SEP can start at any time to allow a group of employees to find their health insurance plans on the Marketplace. If you’re starting the ICHRA and canceling a group plan simultaneously, the best time to start the ICHRA will be the day after the group plan cancellation takes effect.
Step 2: Make classes of your eligible employees
One of the significant advantages of ICHRAs is that they allow employers to figure out the eligibility criteria and class for their employees. Employers can design classes for their eligible employees depending on factors such as age, job description, coverage needs, and family size. In that way, employers can meet the healthcare coverage needs of their employees more efficiently.
In an ICHRA, the employer can make the following eleven classes of their employees and offer them different (or the same) plans to meet their coverage needs:
- Full-time employees
- Part-time employees
- Seasonal employees
- Salaried employees
- Non-salaried employees
- Employees covered by a particular collective bargaining arrangement
- Temporary employees
- Employees who have not satisfied a waiting period
- Non-resident aliens with no US-based income
- Employees working in the same insurance rating area
- Any combination of two or more of the above classes
With these classes, employers have three options to offer an ICHRA to their employees:
- Offer ICHRA to all employees
- Offer ICHRA to the employees of only certain classes and not offer a benefit to certain classes
- Offer ICHRA to the employees of only certain classes and offer a traditional group health benefit to specific classes.
In a nutshell, employers have the freedom to choose the employees whom they want to offer an ICHRA benefit.
Step 3: Decide Your ICHRA benefit budget and set the contribution allowance
It’s the most important step in setting up an ICHRA for your business. In this step, employers figure out their annual budget for ICHRA and other healthcare benefits. They also decide the monthly contribution allowance per employee for health insurance premiums and qualifying healthcare expenses reimbursement. While deciding these amounts, you must keep the following in mind:
- There’re no restrictions or limits on the monthly contribution allowance. It means you can set it as little to as high as you want.
- You can offer different contribution allowances to different employee classes.
- Employers must consider an employee’s age and family size while deciding their monthly contribution allowance.
Once the annual budget and contribution allowance are set, you have completed the 80% process of setting up an ICHRA for your business.
Step 4: Legal Documentation of the ICHRA plan
Employers must have a formal written ICHRA plan document to follow the ERISA (The Employee Retirement Income Security Act) and Internal Revenue Code. The SPD (Summary Plan Description) is also an essential document to have for employers. These documents confirm the legal status of your ICHRA plan. They cover a large amount of information about the terms and conditions of the ICHRA plan. These documents are required to include monthly reimbursement amounts, employees’ class structure, claim processes, and minimum eligibility criteria for employees. These documents must be distributed among the employees.
Step 5: Communicate the essential terms and conditions of the ICHRA to employees
Once your ICHRA setup is completed, the next step is to spread awareness among your employees about its important terms and conditions. Employers are legally required to notify the employees at least 90 days before an ICHRA start date. The notification must include the minimum eligibility criteria and essential information about ICHRA in a comprehensible way. The employer should supply proper guidance to their employees about using the ICHRA benefit properly.
The best way to communicate the important terms, conditions, and resources of the ICHRA to your employees is to organize a Q&A session. You can expect the questions and prepare their answers in advance. You should also engage an administrator to help guide employees through the enrollment process. Organizing ICHRA guidance sessions on a weekly basis can be effective in helping your employees make the most of this healthcare benefit.