Employer adoption of specialized accounts that they fund to help reimburse employees when they buy health insurance on their own is surging in 2024.
The number of employers who offer individual coverage health reimbursement accounts (ICHRAs) grew 30% in 2024 from the year prior, expanding a benefit that provides employers another option than purchasing group health plans for their employees, according to a new report by the HRA Council.
Employers fund these accounts with money that employees can use to purchase health insurance, often on Affordable Care Act exchanges.
Uptake has been even larger among employers with 50 or more full-time employees (up 85%). These employers are required to purchase health coverage under the ACA, and offering ICHRAs allows them to satisfy the employer mandate under the law.
Thanks to generous subsidies on the exchanges, the funds that employers contribute are often enough for workers to purchase either Silver- or Gold-level plans, which have the lowest copayments, coinsurance and deductibles.
How ICHRAs work
As mentioned above, employers fund ICHRAs with money that workers can use to help reimburse for the purchase of health insurance, often on an ACA exchange. Excess funds can be used to reimburse them for qualified medical expenses, including copays, coinsurance and deductibles, in addition to medications and some medical equipment.
Funds are deposited into the ICHRA on a monthly basis. These funds are not taxed.
Employers that offered an ICHRA between July 1, 2022 and June 30, 2023 contributed an average $908.80 a month, which was more than enough to purchase the lowest-cost self-only Gold plan on an ACA exchange, according to a report by PeopleKeep, a benefits administration software company.
Some other features of these plans include:
- No reimbursement limits.
- Firms of any size can offer an ICHRA.
- Employers may designate different reimbursement amounts to different types of employees.
- Employers can offer both group health plans and an ICHRA concurrently.
Satisfying the employer mandate
ICHRAs can satisfy the ACA employer mandate if they meet the standards the law sets out for group health plans:
Affordability: To be considered affordable, employer-sponsored health insurance or benefits for employees should cost no more than 8.39% of the employee’s household income in 2024, using the lowest-cost Silver plan on the ACA exchange as a standard after accounting for the employer’s ICHRA contributions.
In other words, the lowest-cost Silver plan premium, minus the employer’s ICHRA monthly allowance, must be less than 8.39% of the worker’s household income.
Minimum value: Under the ACA, a health plan meets the minimum value standard if pays at least 60% of the total cost of medical services for a standard population, and its benefits include substantial coverage of physician and inpatient hospital services. Any plan a worker purchases on an ACA exchange will satisfy the employer mandate.
Small-employer option
There is actually a similar plan that is only available to employers with fewer than 50 full-time equivalent workers: the qualified small employer health reimbursement account. QSEHRAs differ from ICHRAs in a number of ways.
They have maximum contribution limits, determined by the IRS each year. For 2024, those limits are $6,150 for each self-only employee and up to $12,450 per employee with a family.
While an ICHRA allows for varying allowance amounts based on many employee classes, QSEHRAs only allow employers to vary reimbursement amounts based on age and family size.
All full-time W-2 employees and their families are automatically eligible for a QSEHRA. Employers may offer plans to part-time employees as well.
Employers can’t offer both group insurance and a QSEHRA to their staff.
The takeaway
While these accounts are growing in use, it’s a risky move to stop offering group health insurance and replace it with an ICHRA. These are new accounts and most workers will be unfamiliar with them.
And considering that health insurance is one of the main benefits that employees look for, offering a reimbursement arrangement may turn some workers off. Give us a call if you have questions.
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