Expert Explains How to Use Health Reimbursement Arrangements as an Affordable Small Business Health Insurance Option

Date: September 16, 2021

What to know about the Individual Coverage Health Reimbursement Arrangement (ICHRA)

To countless workers, health insurance is one of the most important factors to look at when choosing a job. Historically, it’s been challenging for small businesses to offer affordable and flexible health insurance to square.  

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a health plan targeted at small business owners. “We know that staffing shortages that are a major headwind right now for many employers, and they are trying to compete for talent in this very tight labor market,” said NFIB’s Holly Wade. “[The ICHRA] might be a helpful benefit to offer applicants, and also as a retention tool for current employees if the employer doesn’t currently offer health insurance.” 

Holly then introduced Brian Blase, Ph.D. of Blase Policy Strategies, to explain the ICHRA, a program he was instrumental in implementing during his time on the White House’s National Economic Council. 

A relatively new way for employers to provide their employees with health coverage, the ICHRA has been compared to the 401k of Health Insurance. “Instead of the employer picking the plan that all the employees have access to,” Brian explained, “the employer provides a contribution while the employee takes the contribution and buys a plan that works for them in the individual market.” 

Under the ICHRA, employers, under certain conditions, can reimburse premiums for individual market coverage (for employees under 65) and Medicare (for employees 65 and older). The employer contribution is not subject to federal income or payroll tax. If the expense exceeds the employer contribution, then the employees may pay their share of the premium that is, again, not subject to federal income or payroll taxes. All employees in the same class must be provided with the same terms, but older employees and employees with larger families can be offered larger contributions. 

Brian then went on to explain the high level of control that employers have over their ICHRA. “The basic decisions that employers face when choosing an ICHRA: one, you have to decide which employees to cover, then you decide how much to reimburse. An HRA is an employer-controlled arrangements, so you’re the one who decides which expenses to reimburse – whether you’re going to just reimburse premiums or if you’ll allow the HRA to reimburse other expenses.”  

There are numerous other concerns for owners, such as whether to use waiting periods, when to start coverage, whether to reimburse family coverage, whether to provide greater contributions to older workers, whether to provide greater contributions to larger families, and more. 

Brian also mentions that ICHRAs offer substantial advantages to employers, such as greater control and flexibility over health plans as well as more predictability about cost growth. There is also less administrative hassle as there’s no need to pick plans, no minimum contributions, or participation requirements. Employers can also save money thanks to more favorable premiums, and prospective employees can be enticed by the flexible health coverage options. 

He goes on to discuss variants of the ICHRA, such as ones that are compatible with Health Savings Arrangements, or ICHRAs that only cover premiums. 

“A lot about health policy is confusing, and gets involved in partisan politics, and creates uncertainty, but ICHRAs are bipartisan,” Brian concludes. “It’s getting easier over time for employers to offer ICHRAs as vendors get more used to offering them, working through obstacles and kinks.” 

In addition to the ICHRA, the webinar offered information on several federal pandemic-recovery assistance programs for small businesses like the Economic Injury Disaster Loan (EIDL) and Employee Retention Tax Credit (ERC). 

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