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‘Big Beautiful’ Tax Bill Would Make Major Changes to HSAs, ICHRAs

by Inoventive Solutions
June 3, 2025

The “Big Beautiful” tax bill being debated in Congress has several provisions that would make major changes to rules governing individual coverage health care reimbursement arrangements and tax-advantaged health savings accounts. Many of these changes would benefit both employees and employers.

The legislation has not yet been signed into law and could undergo significant changes in committees in the U.S. Senate. After the Senate makes changes to the bill, which has already passed the House, it may be completely different. However, the changes proposed for ICHRAs and HSAs seem to be noncontroversial, with no opposition reported.

Here’s a look at the proposed changes.

Making changes to HSAs

HSAs, which are tied to qualified high-deductible health plans (HDHPs), allow employees to sock away untaxed income for future medical and health-related expenses. Usually, a set amount is withdrawn from their paychecks before taxes are applied.

Account holders can invest the money in these accounts like they do with 401(k) plans; the accounts can be moved from one employer to the next and kept into retirement. Funds are withdrawn tax free to reimburse for qualified medical and health-related expenses.

The bill would:

  • Allow working seniors who are 65 and older to continue contributing to an HSA, a change from current law that prohibits this.
  • Expand HSA eligibility to people with ordinary bronze-level plans and catastrophic major medical coverage. Currently, only individuals in HDHPs have access to HSAs.
  • Allow an HSA to reimburse for gym memberships and other fitness-related costs. The reimbursement limit would be $500 annually for individuals and $1,000 for families.
  • Permit workers with access to an employer’s on-site clinic to contribute to HSAs. Under current law, access to an employer health clinic violates the rule that an HSA owner must have an HDHP.
  • Allow married couples who file taxes jointly to make catch-up contributions to the same HSA. Currently, married couples can only make catch-up contributions to their own accounts. The maximum HSA contribution in 2025 is $4,300 for an individual and $8,550 for a family. Individuals over the age of 55 can make catch-up contributions of up to $1,000 each year.
  • Allow HSA owners to pay dues for a “direct primary care practice,” a subscription service for primary care. It would limit the reimbursable dues to $150 for an individual and $300 for a family.
  • Allow workers with health reimbursement or flexible spending arrangements that are terminating to roll some unused funds from those accounts into an HSA. The maximum amount that can be converted is linked to the FSA contribution limit, which is $3,300 in 2025.
  • Would allow one spouse to contribute to an FSA and the other to an HSA. Under current law, if one spouse has an FSA, the other cannot contribute to an HSA.
  • Would set the maximum HSA contribution based on earnings. For example, for employees making $75,000, the contribution limit would increase to $8,600 for an individual, compared to $4,300 today. For a couple making $150,000 annually, the amount would jump to $17,100 from the current $8,550.

Tweaking ICHRAs

The legislation would rebrand ICHRAs to individual care expense arrangements (CHOICE arrangements), which would be made available through a cafeteria plan.

This change would also address an issue that has plagued ICHRAs: funds in those accounts are not eligible for tax-free status if used to purchase individual coverage on Healthcare.gov or other Affordable Care Act exchange. By funding them through a cafeteria plan, workers with CHOICE arrangements would be able to pay for individual coverage on the exchange using tax-free dollars.

The bill would also allow employers to give workers the option of enrolling in a CHOICE arrangement or a traditional group health plan.

Further, it would provide employers a monthly tax credit of $100 per employee enrolled in a CHOICE plan when the plan includes major medical coverage that offers at least the same type of benefits that a bronze plan on the government exchange would. Typically, bronze plans cover about 60% of medical costs.

The takeaway

Much can change between now and when the tax bill is signed into law. If the above provisions make it into the final version, they could greatly expand the use of HSAs and ICHRAs. One analysis of the bill predicts it would expand the pool of people eligible for HSAs by 20 million.

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How to Deal with ICHRA Administration

by Inoventive Solutions
March 24, 2025

Employers that have decided to offer their staff individual healthcare reimbursement accounts to purchase health insurance on their own have been encountering administrative headaches.

Simply tracking whether workers in an ICHRA plan have secured coverage can be complicated, but employers need to contend with other compliance issues too. As a result, more firms have turned to third party plan administrators or insurers to simplify enrollment for ICHRAs, which adds to the costs of administering these plans.

ICHRAs are still foreign to most employers and their workers. They became a viable option for funding health insurance for employees in 2020. Since then, they have grown in popularity as they provide another option for businesses to help fund employees’ coverage. Younger and healthier workers have been most responsive to these plans, as the arrangements provide a way for them to secure low-cost coverage on their own.

Employers can contribute a specific amount to an ICHRA each year or each month. Participating employees must use those funds to purchase individual health insurance coverage on an Affordable Care Act marketplace or in the open market.

Employers can offer an ICHRA as a stand-alone benefit or alongside a group health insurance policy. For example, an employer could offer group coverage to full-time employees and an ICHRA to part-time employees.

However, employers who offer ICHRAs may face various administrative challenges:

  • Documentation —Employers are required to comply with IRS reporting rules, just as they would if they provide health insurance.
  • Reimbursements —Employers must track reimbursements and verify that participating employees secure and maintain their coverage. 
  • Compliance—ICHRAs must comport with IRS, Department of Labor, ERISA and COBRA regulations. 
  • Employee understanding —Employees may be unfamiliar with ICHRAs and need help understanding eligibility and benefits. This requires additional training as well as one-on-one meetings.
  • Setup—Employers must navigate setup requirements, determine administrative methods and educate employees.

Other considerations for employers include:

Loss of premium tax credits —Employees eligible for affordable ICHRA coverage lose access to ACA premium tax credits, which reduce their premium on exchanges, resulting in higher costs for them. They lose this credit even if they decline the benefit.

Coverage and family limitations—ICHRA funds cannot be applied to spousal group plans. As a result, family members need to secure coverage from another source, like a group plan for the other parent, or purchasing a plan on the ACA marketplace.

Employee backlash —Since these are still relatively new products, forcing workers to shop for health coverage on their own could create resentment in the ranks.

What employers can do

One benefit of these plans is that they often pull young, healthy workers back into the risk pool. However, older staff with health conditions that increase health plan usage are not likely to go for an ICHRA. Likewise, staff with families needing coverage are likely to balk at the option.

Employers considering offering employees ICHRAs and looking to reduce administrative and other burdens may want to hire a third party administrator specializing in ICHRAs. 

Some of these administrators function as a bridge between employers and health insurance companies, facilitating the enrollment process for employees choosing individual health plans. Administrators can manage communication, ensure compliance and streamline the selection of plans available through different insurers.

 Companies who prefer not to outsource these functions can:

  • Use software tools to streamline processes.
  • Train personnel to manage reimbursements and compliance.
  • Provide clear communication and training to employees.
  • Offer support to help employees navigate eligibility requirements.
  • Work with us to stay up to date on compliance requirements.
  • Use detailed consolidated invoicing to simplify the billing process.
"Most
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Most Workers Uncomfortable with Cash-for-Coverage Plans

by Inoventive Solutions
February 11, 2025

A recent survey found that the majority of employees prefer traditional employer-sponsored health insurance over receiving cash through an individual coverage health reimbursement arrangement (ICHRA) to buy their own coverage on the Affordable Care Act marketplace.

The survey, conducted by Softheon, a health coverage distribution technology firm, and its subsidiary W3LL, found that 80% of respondents would rather have their employer provide health insurance, while only 20% preferred receiving employer funds to purchase their own plan.

The findings also showed that 54% of workers favored their firm offering multiple health plan options, while 26% preferred a single plan.

The findings reflect the importance of educating workers about ICHRAs if an employer is planning to start offering these vehicles.

How  ICHRAs work

ICHRAs allow employers to provide tax-free funds that employees can use to purchase their own health insurance on the marketplace or through private insurers.

With an ICHRA, employers set a fixed allowance for employees to use toward their health insurance premiums and qualifying medical expenses. Employees then select their own coverage and pay premiums upfront, submitting receipts for reimbursement up to their firm’s contribution limit.

The employer’s funding is tax-deductible, and reimbursements are tax-free for employees as long as they purchase a plan that meets the ACA’s qualifying criteria.

These plans have grown in popularity as companies look for cost-effective alternatives to group health insurance, especially small and mid-sized businesses that may struggle with the rising costs of traditional plans.

While ICHRAs provide greater customization, they also require employees to take a more active role in selecting and managing their own health coverage, which can be a barrier for those unfamiliar with navigating the insurance marketplace.

Employee comfort levels with ICHRAs

Workers’ attitudes toward ICHRAs varied depending on how the questions were framed. When asked directly about receiving a cash stipend for health coverage:

  • 29% said they were very comfortable with the idea.
  • 40% said they were somewhat comfortable.
  • 31% expressed discomfort with the concept.

Concerns about selecting their own coverage were also significant:

  • 30% of respondents worried about choosing the wrong plan and either getting too much or too little coverage.
  • 29% were primarily concerned about paying too much for a plan.
  • 63% believed that employer assistance in navigating the ACA marketplace would improve their experience.

ICHRA awareness and adoption

Four out of five respondents admitted to knowing little or nothing about ICHRAs, while 20% said they were somewhat or very familiar with the concept, even though they didn’t have ICHRA coverage themselves.

In light of this lack of awareness, if you plan to offer an ICHRA, you’ll want to educate your staff about the arrangements and ensure employees understand that they are responsible for selecting their own individual health insurance plan under an ICHRA. 

Key points to cover when educating staff:

Basic definition: Explain what an ICHRA is, highlighting that it’s a reimbursement account where the employer contributes a set amount towards the employee’s individual health insurance premiums. 

Eligibility: Clearly state who is eligible for the ICHRA within the company, including any criteria based on job role or location. 

Allowance amount: Specify the monthly or annual ICHRA allowance each eligible employee will receive. 

Plan selection process: Guide employees on how to shop for an individual health insurance plan on the marketplace or through other providers, emphasizing the importance of comparing coverage options to find the best fit for their needs. 

Reimbursement process: Explain how to submit claims for reimbursement, including required documentation and deadlines. 

Impact on premium tax credits: Inform employees how the ICHRA may affect their eligibility for premium tax credits, and how to navigate this aspect when selecting a plan.

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Uncategorized

Premium Reimbursement Plans Grow in Usage, Despite Drawbacks

by Inoventive Solutions
December 6, 2022

More employers are opting to fund accounts that their employees can draw on to purchase their own health insurance, either on an Affordable Care Act exchange or on the open individual market, according to a new report.

Individual Coverage Health Reimbursement Arrangements (ICHRAs) offer employees a set budget for premiums, allowing them to pick the health care plan that works best for them.

Some companies have been exploring these arrangements in lieu of providing their group health benefits, in order to save money and reduce the administrative burden, according to the “2022 ICHRA Report” by PeopleKeep, a human resources software company.

The average amount employers funded ICHRAs with was $981 per employee in the year ended June 30, 2022, according to the report. That is twice as much that’s needed to purchase the average lowest-cost gold plan on the marketplace.

But these plans have their drawbacks and are not for all employers. So, it’s important to understand how they work and their limitations.

The ICHRA explained

ICHRAs, created by regulations promulgated by the IRS in 2019, allow employers subject to ACA coverage requirements to forgo purchasing insurance for employees and instead provide extra funds for them to purchase their own health insurance coverage. Here are some ICHRA basics:

  • Regulations allow for employers to offer ICHRAs to some of their employees, and group health benefits to others.
  • Some accounts are restricted to reimbursing only for health insurance premiums, while others also reimburse for out-of-pocket medical expenses. Unspent funds can be saved over the course of the pay period for expenses in the calendar year.
  • Every pay period, the employer will fund the account with a set amount over the course of the year. The employee will pay for their premiums and get reimbursed by showing proof of payment.
  • Employees don’t pay taxes on health care spending reimbursed through the ICHRA.
  • Accounts are not portable when employment ends.
  • For applicable large employers subject to the ACA employer mandate, the ICHRA funding must meet the ACA’s coverage and affordability requirements and be enough to purchase the lowest-cost silver plan on the marketplace.
  • There is no limit on how much an employer can fund the account with.

Not a good fit for all firms

There are many restrictions to ICHRAs as well as drawbacks which employers need to consider:

  • The employee loses the employer-sponsored coverage they’re accustomed to and has to fend for themselves to find coverage that fits within the budget their employer provides. This could cause employee resentment.
  • Offering group health plans to salaried employees and higher-wage staff and ICHRAs to lower-wage workers, who may view it as a two-tier system, could again cause resentment.
  • Having an ICHRA could affect recruitment efforts and retention, as most workers have grown accustomed to their group health benefits.
  • Employees may choose plans that leave them with either higher premiums than they’d pay for a group plan, or higher out-of-pocket expenses on the back end.
  • Employees must use the funds to purchase health insurance and they may not be enrolled in their spouse’s health plan.
  • If your ICHRA is considered affordable according to ACA rules, employees lose the premium tax credit if they opt out of the ICHRA. If your ICHRA is considered unaffordable under ACA rules, they can claim the premium tax credit and waive their right to the ICHRA.

Businesses most suited for ICHRAs

These plans often work best for operations that have:

  • High staff turnover.
  • A large number of lower-paid workers.
  • A mix of salaried and hourly workers.
  • A mix of employees at the company site and remote workers in other regions.

The takeaway

Sticking with a traditional group health plan can help you with recruitment and retention, but for some employers who look to attract workers who do not put a priority on employee benefits, these types of plans could be a good fit.

Making a move to one of these plans takes careful consideration and planning. We can help you sort through the facts and fiction about these accounts.

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