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Can an ICHRA reimburse more than health insurance premiums?
With the new ICHRA, employers can reimburse employees for their purchase of individual health insurance coverage. Employers can also set terms to let an ICHRA reimburse more than health insurance premiums.
The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a new HRA available for plan years beginning January 1, 2020, and later. Like the QSEHRA, the ICHRA makes it possible for employers to reimburse employees for their purchase of individual health coverage premiums but without the QSEHRA’s employee group size limits.
That’s good news for all employers looking to craft the best health benefit for employees, but reimbursing individual coverage premiums isn’t the only benefit an employer can provide through an ICHRA.
ICHRA reimbursements
With an ICHRA, employers can reimburse employees for any IRS 213(d) allowed medical expense. That covers individual health coverage insurance premiums and all other expenses listed in IRS Publication 502.
This means the same ICHRA that reimburses an employee for health insurance premiums can also reimburse the employee for deductible expenses, co-pays, co-insurance, prescriptions, and more.
The individual health insurance premium will always be paid first because participants are not eligible for any ICHRA reimbursement until substantiation of coverage is submitted for that month.
However, at the employer’s option, any funds remaining in the ICHRA after premium reimbursement can be set to pay other eligible medical expenses. All you have to do is choose that option on the ICHRA order form.
Other allowed reimbursement accounts
The ICHRA can also be paired with a Health FSA (in the employer’s Section 125 plan) or HSA (Section 125 or stand-alone). These plans provide additional tax-free non-premium reimbursement to the employee with a tax-saving bonus to the employer.
Remember that all ICHRA reimbursements require substantiation of Individual Health Coverage.
Health FSA
The Health Flexible Spending Arrangement is a popular contribution-based fund that allows employees to draw upon their own pre-tax salary deduction (plus optional tax-free employer contributions) to pay for out-of-pocket medical expenses.
Another option is the HSA-compatible limited Health FSA that pays only dental and vision expenses.
HSA (with HDHP)
Sometimes an employee will request reimbursement for a high-deductible health plan (HDHP) insurance premium for a policy that is paired with their Health Savings Account.
An employer can have an ICHRA reimburse HDHP premiums and specify that any remaining balance may reimburse post-deductible expenses only (with exceptions for specific preventative care benefits).
It is necessary to set the terms of an HSA-compatible ICHRA this way so that the employee does not lose eligibility to contribute to an HSA for the plan year and face potentially severe tax consequences on any contributions made.
Also, in the final rule1 governing ICHRAs, the Departments have determined that it is the employer’s responsibility to track deductible expenses submitted to make certain the ICHRA only reimburses non-premium medical expenses after the HDHP deductible is met.
Alternatively, an employer can state that the ICHRA reimburse HDHP premiums but not allow additional reimbursements beyond the premium.
1″If a plan sponsor chooses to offer an HSA-compatible individual coverage HRA that reimburses medical care expenses after the minimum deductible under Code section 223(c)(2)(A)(i) is satisfied, it is the employer’s responsibility to track medical care expenses incurred during the year and ensure that the individual coverage HRA does not reimburse medical care expenses (other than premiums or expenses allowed as limited purpose) incurred prior to the satisfaction of the minimum deductible.” (Ref. p. 142, Health Reimbursement Arrangements and Other Account-Based Group Health Plans.)
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