The short version
- Compare employee access and administration as well as the employer budget.
- ICHRA and QSEHRA follow different eligibility and contribution rules.
- Review premium tax credit effects before promising employees financial assistance.
Start with the employee experience
Under a group health plan, the employer selects the available plan or menu of plans, and eligible employees enroll through the employer’s process. The contribution strategy determines how costs are shared.
With an individual coverage HRA, or ICHRA, employees obtain qualifying individual coverage or Medicare and receive employer-funded reimbursements under the arrangement. With a qualified small employer HRA, or QSEHRA, eligible small employers reimburse permitted healthcare expenses under a different set of rules.
Neither HRA is itself comprehensive medical insurance. The underlying coverage remains important. Sources: HealthCare.gov ICHRA overview and QSEHRA overview
Compare the basic structure
| Consideration | Group health plan | ICHRA | QSEHRA |
|---|---|---|---|
| Basic approach | Employer offers group coverage | Employer reimburses qualifying individual coverage and permitted expenses | Eligible small employer reimburses permitted healthcare expenses |
| Employer size | Carrier and market eligibility apply | Available to employers of any size, subject to rules | Generally for employers that are not ACA applicable large employers |
| Contribution framework | Employer selects contribution strategy within applicable requirements | Employer determines allowance; no federal annual contribution cap | Federal annual reimbursement limits apply |
| Employee enrollment | Chooses from employer’s offered plans | Obtains qualifying coverage | Maintains required coverage for tax-free reimbursement |
| Offering group coverage too | Group coverage is the foundation | Permitted class structures may allow it, but not a choice between both for the same class | Employer cannot offer a group health plan |
This is a starting comparison. Eligibility, class design, notices and tax treatment require a plan-specific review. Sources: ICHRA rules and QSEHRA rules
Make the Washington comparison local
Individual-market and group-market choices may differ. Compare actual plans available where employees live, including hospitals, physicians and prescription benefits. Washington Healthplanfinder is the state’s exchange; employees should use the appropriate Washington enrollment resources rather than assuming another state’s marketplace experience will apply.
Ask how enrollment and premium payment will work for employees in different counties or states. Choice is valuable only when people can find suitable coverage and understand the process. Source: Washington OIC individual health coverage
Model the budget and the remaining employee cost
Illustration: An employer considering a $400 monthly allowance for 12 eligible employees would budget up to $4,800 a month in allowances, plus administration costs, if the same allowance were permitted for everyone and fully used. That calculation does not tell you whether $400 buys suitable coverage for each person.
Build a comparison using actual available premiums, contribution rules and enrollment assumptions. Include the cost of administration and support. A fixed employer allowance can make one part of the budget easier to forecast while leaving employees with changing premiums and out-of-pocket expenses.
Check premium tax credits before making promises
An HRA offer can affect an employee’s eligibility for marketplace premium tax credits. ICHRA and QSEHRA do not affect those credits in exactly the same way. Employees should have the arrangement notice evaluated through the appropriate marketplace or a qualified adviser before relying on financial assistance.
Do not promise that employees will keep their current subsidy and receive the full employer reimbursement on top. Sources: ICHRA and tax credits and QSEHRA and tax credits
Use a formal process, not an improvised reimbursement
Simply paying an employee back for an individual premium is not equivalent to establishing a compliant HRA. The IRS explains that employer payment arrangements can be subject to group-health-plan requirements. Source: IRS employer healthcare arrangements
Before implementing an HRA, assign responsibility for plan documents, required notices, coverage verification, claims substantiation and employee support. Review owner eligibility separately; ownership and tax status can affect the result.
Compare all three before deciding
Benefit Experts helps Washington employers evaluate benefits around their people and budget. Start with your employee locations, current coverage and contribution goals, then request a benefits review. A useful recommendation explains the employee experience as clearly as the employer cost.
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