How ICHRA Delivers Personalized Healthcare for Employees

Traditional healthcare plans may offer solid benefits for the average American worker, but they often fall short in terms of customizability. 

Remember, implementing a plan that suits the company's budget is just one side of the equation. To maximize employee satisfaction and retention, you need to offer healthcare that's tailored to the specific needs and budget of your workforce. 

Enter ICHRA — short for Individual Coverage Health Reimbursement Arrangement. 

ICHRA is an employer-funded health reimbursement arrangement that lets employers reimburse employees (tax-free, when properly structured) for individual health insurance premiums and, if the employer chooses, other qualified medical expenses. Unlike Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), ICHRA isn’t limited to small employers.

And that's exactly what we'll explore in this post. 

Read on to learn more about ICHRA, why it's awesome, and how to reap the full benefits of flexible healthcare.

Individual Coverage Health Reimbursement Arrangement (ICHRA): An Introduction

ICHRA has a handful of characteristics that make it stand out against other traditional group healthcare and employer-funded plans. 

But it's worth noting that it also shares a few similarities. 

Just like other HRAs, ICHRA enables employers to set their own monthly spending limits or allowances for employee benefits. When an ICHRA is properly structured and administered, reimbursements for eligible expenses are generally excludable from employees’ taxable income, and the employer’s reimbursements are generally deductible as a business expense. 

What makes ICHRA truly unique is, it's designed from top to bottom for customizability.

Let's drill into this a little more.

What are the Benefits of ICHRA? 

To get to know ICHRA a little better, here's a closer look at its benefits:

• No business size restrictions — Unlike QSEHRA (which is limited to certain small employers), ICHRA can be offered by employers of any size; separate ACA rules determine whether an employer is an Applicable Large Employer (based on full-time employees and full-time equivalents).
• Medical expense eligibility — With ICHRA, businesses can specify the types of medical expenses eligible for reimbursement under their plan. Eligible expenses should be limited to qualified medical care expenses under IRS rules (generally Internal Revenue Code §213(d)) and must be clearly defined in the plan terms and administered with proper substantiation.
• Tier-based benefits — ICHRA allows employers to vary allowances by permitted employee classes defined under the regulations (and, within a class, only as permitted—such as by age and family size). Employers can set classes using the permitted class definitions in the regulations (for example, full-time vs. part-time, certain geographic rating areas, or other permitted classes). Independent contractors are generally not eligible unless they are treated as common-law employees.
• Predictability and cost control — Employers can set a defined maximum amount made available (often allocated monthly) to control costs, with carryover rules determined by the plan terms. There is also no upper limit on the monthly reimbursement amount, giving you unprecedented levels of control in terms of employee healthcare costs. 
• Streamlined management — Many employers use a third-party administrator or benefits platform to help administer the ICHRA (for example, substantiation and required notices), although employers can self-administer if they meet all administrative and compliance requirements. While it's prudent to hire a third-party carrier, small-medium businesses can self-manage their ICHRA plan. Using platforms like SimplyHRA, you can set class-based reimbursement plans, monitor transactions, and automate other administrative tasks using a drag-and-drop interface. 

While ICHRA sits at the peak of healthcare customizability, it's not without any checks and balances. 

To receive tax-favored reimbursements under an ICHRA, participants (and any covered dependents, as applicable) must be enrolled in qualifying individual health insurance coverage or Medicare, consistent with the ICHRA rules.

ICHRA rules require the plan to be designed and administered so it is offered on the same terms within each permitted employee class (with only limited permitted variation), and it must not discriminate based on health factors. The key is to apply the plan on the same terms within each permitted class, with only the limited variations allowed by the rules (for example, variation by age and family size), and not based on health factors or individualized treatment.

To better understand how allowances in ICHRA work, here's a quick look at how it works.

How Does ICHRA Work? 

• Step 1: Determine your employees' healthcare needs and define employee classes.
• Step 2: Decide the maximum monthly reimbursement amounts per employee class.
• Step 3: Decide whether your ICHRA will reimburse premiums only or also reimburse other qualified medical expenses (as defined under IRS rules), and document that in the plan terms.
• Step 4: Inform employees about your plan and offer support during the enrollment phase. 
• Step 5: Choose whether to administer the ICHRA in-house or use a benefits administrator/platform to manage plan administration, substantiation, and required communications.
• Step 6: Complete the necessary paperwork (e.g., summary plan descriptions and compliance requirements).
• Step 7: Monitor and use reporting to analyze the effectiveness of your ICHRA plan over time.

The best thing about ICHRA is that it enables customization in almost every step. 

Of course, ICHRA is not going to solve all your employee healthcare problems by itself. You, as an employer, still have to do all the personalization yourself to ensure both employees and your stakeholders are happy. 

The good news is, tailoring ICHRA to your organization's unique needs is not rocket science.

How to Tailor ICHRA to Your Employees

Below are six important ingredients of a perfectly-tuned ICHRA plan for businesses:

1. Understand the Needs of Your Employees

Designing an effective ICHRA plan requires a deep understanding of your employees' healthcare needs — starting with a reasonable reimbursement allowance that can cover their monthly insurance premiums. 

Reviewing your workforce's demographics is a step in the right direction. But if you're serious about providing personalized healthcare, you'll go beyond what you already know through data-gathering techniques like:

• Focus groups
• Surveys & questionnaires
• Open healthcare-related communication channel
• HR records (non-medical) and aggregated, de-identified feedback trends (to the extent available)

2. Define Eligible Medical Expenses

The next step is to compile a formal list of all eligible medical expenses that can be reimbursed through your ICHRA plan.

Use the data-gathering techniques above to understand your employees' individual healthcare needs. This may include items like dental care, prescriptions, physical therapy, and other expenses that qualify as medical care under IRS rules (and as defined in your plan).

Also, consider specifying reimbursable over-the-counter medications that your employees need. This adds another layer of personalization to your ICHRA plan, improving its impact on employee satisfaction and retention.

With SimplyHRA, you can make it easy for employees to customize their plans by including eligible benefits in their workspace. 

3. Create Employee Classes

One of the key advantages of ICHRA is that it enables flexible benefits for different employee classes. 

Use the information you've collected so far to set maximum reimbursement allowances for employees. Create distinct employee classes using the permitted class categories under the ICHRA rules (for example, full-time, part-time, seasonal, certain geographic rating areas, and other permitted classes).

With a tool like SimplyHRA, you can set up multiple employee classes in seconds using the visual editor. You can also set the monthly reimbursement allowance for the employee group in the same form.

Once a reimbursement plan is created, employees can be added to any class upon onboarding. This can also be done in seconds using SimplyHRA's WYSIWYG editor.

4. Set Appropriate Allowance Amounts

Speaking of employee classes, it's important to roll out various reimbursement amounts that are fair, cost-effective, and sufficient for your employees' healthcare needs. 

Striking the middle ground here, of course, can be tricky. But it's definitely more than doable with transparent communication.

Just be sure to give employees a seat at the table when discussing or finalizing allowances. Doing so will make them feel that the ICHRA health plan is indeed for them — not just another item in your compliance checklist. 

In practice, allowance amounts are typically set in the plan terms for the plan year, with pro-rating and mid-year adjustments handled according to the plan’s documented rules (for example, for new hires or dependent changes). Use the pre-renewal phase to adjust your plan based on new regulatory requirements, up-to-date insurance costs, employee feedback, and internal reports. 

5. Focus on Employee Training and Support

Helping employees understand and appreciate your ICHRA plan is just as important as building a healthcare structure tailored to their needs. 

Go beyond the initial kick-off meeting and provide your employees with accessible learning resources. Use a mix of physical and digital media, such as informational brochures, FAQ pages, workshops, and in-person training sessions to get them up to speed on the mechanics of ICHRA. 

If you use SimplyHRA, your team will also gain access to a wealth of up-to-date ICHRA learning resources. This includes a 24/7 AI chatbot that can help answer common HRA questions and guide users to relevant resources (and can escalate complex questions to human support as needed).

The chatbot can also help with simple tasks, such as checking reimbursement status and updating dependent information for allowance purposes (where applicable).

6. Establish a Feedback Loop

Of course, no employee healthcare plan comes out perfect right out of the box — no matter how customizable it is. 

It's still possible for employees to feel boxed into plans that don't fully match their healthcare needs. A typical reason for this is the lack of certain healthcare options you may have overlooked during your data-gathering stage. 

The best way to address this issue is to establish a feedback loop where employees can openly voice out their concerns and suggestions. This can be done through multiple channels, like:

• Feedback forms
• Instant messaging channels
• One-on-one office meetings

Businesses should also consider structured data collection strategies like surveys, suggestion boxes, and feedback meetings to extract meaningful and actionable insights. This not only helps improve your ICHRA plan over time, but also makes employees feel more valued in your organization. 

Conclusion

When it comes to employer-funded healthcare, ICHRA is as flexible as you can get. 

It allows employers to fine-tune nearly every single aspect of their healthcare offerings — from their monthly allowances to reimbursable medical expenses. 

However you slice it, you can streamline ICHRA with the help of visual platforms like SimplyHRA. 

It provides tools to help you design and administer an ICHRA more efficiently, with setup time varying based on plan complexity and your organization’s needs. See it in action by requesting a free personalized demo here!

Not ready for a demo yet? Start with the implementation checklist.