ICHRA Pros and Cons: A Guide for Employers to Upgrade their Benefits
In recent years, the Individual Coverage Health Reimbursement Arrangement (ICHRA) has emerged as a popular health benefits solution for employers of all sizes. As healthcare costs continue to rise, employers are seeking flexible and cost-effective ways to provide employees with access to healthcare coverage. Here, we’ll explore the ICHRA pros and cons to determine if an ICHRA could be a good fit for your organization.
But before we get into ICHRA pros and cons, let’s briefly talk about what an ICHRA actually is. ICHRAs are an employer-funded healthcare benefit plan that provides reimbursement funds for individual health insurance premiums and/or qualified medical expenses. That means instead of offering group health insurance, employers can set up an ICHRA that helps employees pay for their own individual health plans via the Health Insurance Marketplace or private insurers, giving them control over their healthcare decisions. ICHRAs have gained recognition as a powerful option for employers looking to improve their benefit offering flexibility and customization, all while controlling costs.
ICHRA Pros:
- More options for Employees
- A huge pro for Employees is the flexibility to choose an individual health insurance plan that meets their specific needs, compared to a group health plan with opts for a broader one-size-fits-all solution. This flexibility is a huge advantage for employers with a diverse workforce where employees have vastly different healthcare needs as determined by family status, health conditions, lifestyle, and more.
- Cost control
- An ICHRA provides predictable and controlled costs for the employer. Traditional group health insurance plans can increase year to year depending on factors like claims and market conditions. With an ICHRA, employers can set a fixed contribution amount per employee, which allows employers to stick with a set expense amount in their healthcare offerings.
- Tax benefits
- Contributions made to an ICHRA are tax-advantaged, making it a great way to reduce tax liability while helping employees with the costs of healthcare coverage. Plus, qualified expenses are reimbursed tax-free to employees, making it a win-win for both employers and employees.
- Hire and keep the best job candidates
- ICHRAs can be a powerful recruitment and retention tool, giving employees an attractive and flexible benefit that could set you apart from competitors. By letting employees choose their own healthcare coverage that fits their specific needs, employers can offer a wider array of additional benefits since they don’t have the added complexity of managing traditional group health insurance.
ICHRA Cons
- Administrative complexity
- Some employers are concerned with administering an ICHRA, from tracking employee reimbursements to ensuring compliance with IRS regulations. Like many benefits, it’s another plan to administer and manage, which could be more difficult for smaller employers without separate Human Resource departments.
- How we help: BASIC has been administering benefit plans for decades! We take the complexity out of benefits so that employers can focus on what they do best. Plus, tracking expenses and reimbursements is incredibly easy with our Consumer Driven Accounts (CDA) benefits platform. Manage plans online and in the mobile app; it’s completely integrated and tracks everything for employers with lightning fast reimbursement!
- Some employers are concerned with administering an ICHRA, from tracking employee reimbursements to ensuring compliance with IRS regulations. Like many benefits, it’s another plan to administer and manage, which could be more difficult for smaller employers without separate Human Resource departments.
- Additional benefits vendor
- If an employer’s current benefits administrator doesn’t offer ICHRA administration, choosing one means having another vendor to manage. That means additional platforms, extra logins, another relationship to maintain, and overall, a more splintered benefits experience.
- How we help: Our CDA benefits platform offers dozens of in-demand benefit accounts like FSAs and HSAs, as well as ICHRAs, which means employers can offer a comprehensive package of benefits on the same platform! It provides the ultimate convenience for employers and employees alike, making everything accessible online or on-the-go!
- If an employer’s current benefits administrator doesn’t offer ICHRA administration, choosing one means having another vendor to manage. That means additional platforms, extra logins, another relationship to maintain, and overall, a more splintered benefits experience.
- Risk of discrimination
- Employers must structure their ICHRA plan in a very specific way, as the IRS requires ICHRA plans to be offered to all employees within a defined class (e.g., full-time, part-time, seasonal, etc.). If an employer does not follow the IRS requirements correctly, the plan could be considered discriminatory which may result in penalties.
- How we help: Our experienced benefit professionals help employers design a plan that meets IRS requirements and ensures contributions are compliant with relevant guidelines. Our decades of benefits management will deliver a compliant ICHRA structure from start to finish.
- Employers must structure their ICHRA plan in a very specific way, as the IRS requires ICHRA plans to be offered to all employees within a defined class (e.g., full-time, part-time, seasonal, etc.). If an employer does not follow the IRS requirements correctly, the plan could be considered discriminatory which may result in penalties.
After reviewing these ICHRA pros and cons, do you think an ICHRA is right for you? Let us help you discover how an ICHRA could benefit your organization! It can be a powerful tool when paired with the right situation and experienced administrator like BASIC!
