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An I.C.H.R.A. or Individual Coverage Health Reimbursement Account has several advantages for small businesses that make it affordable. This is not health insurance but an ACA-compliant alternative for small and large business. Instead of implementing and managing a small business health insurance plan with a single carrier, a business can reimburse their employees for the individual plan of their choice. This option allows small businesses greater control over premium costs and employees can choose the individual plan that fits their needs and provider network preferences.
The I.C.H.R.A. first started offering coverage on January 1st, 2020. When a business starts an I.C.H.R.A. program for their employees, it automatically opens a special enrollment period for those employees, and they can choose an individual plan just as they would during open enrollment on either their state exchange or on healthcare.gov if that state is on the Federal exchange. Individual plans vary depending on the residential zip code of the individual employee. This plan is attractive to businesses built on the decentralized work-from-home model. Employees get reimbursed regardless of the state in which they reside.
Small businesses do not legally have to offer health insurance benefits to their employees. Health insurance is expensive and is the number one reason small business owners are reluctant to provide it to their employees. The I.C.H.R.A.’s most attractive feature is its affordability. Here are the six distinct financially impactful benefits for small businesses with fewer than 50 full-time equivalent employees.
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1.) Traditional health insurance plans require the employer to pay a minimum of 50% of the group premiums. There is no minimum percentage requirement for businesses with fewer than 50 employees. The reimbursement amount is completely up to the small business owner.
2.) With most carriers, traditional small group plans require a minimum employee participation of 75%. most With an I.C.H.R.A., the minimum participation is two employees. The number of employees that decide to either opt in or opt-out will not affect your ability to secure a health insurance program for your employees that do want it.
3.) The employer does not have to choose a plan or multiple plans hoping that those plans appeal to most employees. With an I.C.H.R.A., the company merely reimburses employees for their individual plans. The employee is then free to choose any plan available on the individual market.
4.) The employee can pay for their portion of their monthly premiums with pre-tax dollars. This provides additional buying power for the employees and extends to spouses and dependents if they choose to include them in the I.C.H.R.A. plan. This is not possible if the employee is purchasing their individual plan directly.
5.) Small businesses can reimburse different amounts to different classes of employees. These classes include full-time, part-time, salaried, non-salaried, remote workers, etc. With a small group plan, this is not possible. The flexibility of this feature is an advantage for small business owners that want more control over how their benefit offerings are distributed to their employee groups.
6.) Individual health insurance plans on the silver and gold metal tiers tend to be less expensive than their small group plan counterparts. Individual plans have become more specialized in the benefits they offer. At the same time, small group plans have more comprehensive benefits that appeal to many people. The bottom line is that your employees can get comparable coverage for less money.
Certain specific components of an I.C.H.R.A. may be unappealing to some businesses. Preferred provider networks or P.P.O.s are only available on small group plans. Individual plans only offer H.M.O. or E.P.O. networks which are not as extensive. Also, companies that provide I.C.H.R.A.s require a monthly fee per employee and often a software portal access fee. The fees are modest, and the software simplifies managing employee enrollment and premium fee payment simple.
Small group plans on Silver and above metal tiers are full of significant benefits ranging from acupuncture and chiropractic co-pays to ambulance and emergency room benefits. This makes group plans more expensive; however, for small businesses with the capital to invest in a small group plan, the benefits are typically superior to individual plans. If a small business aims to offer a top-tier benefits package, a small group plan is likely the best option. If, on the other hand, the cost is the deciding factor, an I.C.H.R.A. is an excellent option that allows small businesses to offer competitive benefits through reimbursement.
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