Would an ICHRA or QSEHRA Actually Lower Employee Costs? A Washington Employer Test

Name the arrangement before running the numbers

Federal consumer materials now use CHOICE Arrangement for an individual coverage HRA, commonly called an ICHRA. An ICHRA and a qualified small employer HRA, or QSEHRA, are different arrangements. The name change in federal outreach should not be treated as a new promise of savings. Source: CMS.

A QSEHRA is generally for an eligible employer below the ACA large-employer threshold that does not offer a group health plan. It has an annually indexed reimbursement limit and must be employer funded. Owner eligibility also needs review. Source: IRS.

Build confidential employee scenarios

Use several representative situations: employee-only coverage, an employee with children, a family, and people living in different Washington counties. Vary age and household income where relevant. An adviser or administrator can perform individual checks without sending diagnoses or complete household finances to HR.

For each scenario, collect the current employee premium, proposed allowance, actual individual-plan premium and likely out-of-pocket costs. List provider and prescription needs privately. Record the plan year and the assumptions so an estimate does not become a standing promise to an employee.

Use actual available coverage rather than a statewide average. Washington's OIC lists individual plans by county, reflecting an important limit on what employees can choose. Source: Washington OIC.

Test tax-credit eligibility before subtracting a subsidy

An affordable ICHRA offer can prevent Marketplace premium-tax-credit eligibility. An employee who accepts the ICHRA cannot also use those tax credits; declining an unaffordable offer may permit credits when other requirements are met. A QSEHRA has different coordination rules, including a reduction to available credits when the arrangement is unaffordable. Source: HealthCare.gov.

Ask the administrator to show the applicable calculation rather than automatically subtracting both the employer allowance and an employee's current tax credit. An employee's prior subsidy is not proof of what will be available after the employer changes benefits.

For an ICHRA, permitted employee classes and any class-size requirements also matter. The employer cannot simply invite each employee to choose between the group plan and an ICHRA. Source: HealthCare.gov ICHRA guidance.

Show employer savings and two different employee outcomes

Hypothetical illustration: An employer currently contributes $600 monthly per enrolled employee and considers a $500 allowance plus a $30 monthly administration charge. At full use of that allowance, the employer's cost falls by $70 per employee, or $840 annually.

Employee A currently pays $150 monthly. An individual plan costs $650; after a $500 reimbursement, the remaining premium is also $150. Employee B currently pays $150 but needs an available plan costing $850. Their remaining premium is $350, a $2,400 annual increase.

These illustrations assume no premium tax credit, eligible premiums and sufficient substantiation. They exclude medical cost sharing and do not represent market quotes. They show why an employer saving $840 does not mean every employee saves $840. Confirm actual allowances, fees, usage and tax-credit eligibility before deciding.

Add access, paperwork and cash flow

Ask employees to verify doctors, hospitals and drugs under the specific individual plan. A familiar insurer's group product and individual product can have different networks. Include these differences in the comparison before treating the premium as equivalent coverage.

Ask how premium reimbursement works: who pays first, what evidence is required, how quickly reimbursements occur and who resolves a rejected request. Confirm how unused allowances are handled and which expenses the arrangement permits.

Include the employer's administration charge, setup expense and staff time. A reimbursement budget may be predictable while the employee experience still requires meaningful support.

Check the proposed start date and employer obligations

Assign responsibility for documents, employee notices, coverage verification and tax reporting. Have the administrator determine the actual notice deadline, including any rules applicable to newly eligible employees or newly established employers. Do not assume a plan can be installed on the date printed on a sales illustration.

For an applicable large employer, replacing group coverage also requires an ACA employer-responsibility review. Budget predictability does not itself establish that the offer meets the applicable requirements. Related employers and part-time hours can affect the workforce calculation. Source: IRS.

Choose using the distribution of results

Look at how many employees improve, remain similar or face higher costs under the actual scenarios. Ask whether a different allowance, compliant design or continued group plan addresses the weak results. Keep an estimate of employer maximum spending beside expected reimbursement use.

Ask Benefit Experts to compare the alternatives using your census, current contribution schedule and renewal. The decision should explain both the employer budget and employees' realistic coverage choices.

Benefit Experts helps employers with QSEHRA and other HRA arrangements. We are Exchange certified and can help employees find and enroll in qualified individual coverage through Washington Healthplanfinder. Employer arrangement design, employee enrollment and any financial assistance should be coordinated so the coverage and reimbursement rules work together.

Common employer benefits questions