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 What is ICHRA and How Does it Work?

What is ICHRA and How Does it Work?

ICHRA stands for Individual Coverage Health Reimbursement Arrangement. This is an extremely new policy that was just created in 2020. This health reimbursement arrangement is a great way for employers to give back to their employees. Although there are current protocols set in place to allow Americans to get full healthcare coverage through their insurance, accidents happen. Sometimes, employees are going to have to pay out of pocket to buy the insurance premiums they need.

The ICHRA is giving employers the opportunity to pay for some or all of these insurance premiums for their employees. Employers can offer this assistance to any of their employees who have plans that started on or after January 1, 2020. The best part is all of these reimbursements are tax-free when the employees have to get their own insurance coverage through Medicare or any other major medical market avenues. Employers also have the option to pay for any and all out-of-pocket medical expenses their employees have to pay as well.

ICHRA Employee Reimbursement

The limit for reimbursement is set by the employer so they get to choose exactly how much money they’re willing to give each individual employee. There is a catch. The employers have to offer the same amount of coverage to all their employees who are eligible for it.

In only one instance can this common reimbursement standard waver. There is a maximum 3:1 ratio standard that can be used to distinguish the reimbursement limits for age-based variations. The employers can choose to alter these limits for employees of different ages and family sizes.

What Coverage Makes You Eligible?

In order for an employee to be eligible for ICHRA, they need Medicare or some other form of individual medical coverage from a major health insurer. This includes the “grandmothered” or “grandfathered” insurance plans as well as any individual plans that were sold on the Exchange.