Good fit, poor fit.
It tends to fit when
Staff live across several of Washington's nine rating areas, hourly and salaried roles need different budgets, or you want a set dollar amount per class instead of absorbing whatever the group renewal says.
It tends to struggle when
Much of the team depends on doctors that nearby individual plans don't include, older employees or families would net out paying more, or the class you have in mind is too small to meet the minimum. Our HRA decision guide covers the alternatives.
Classes are where an ICHRA holds up or falls apart.
Build classes from the permitted list
Job, schedule and location. Never health.
Classes can include full-time, part-time, salaried, hourly, seasonal, and employees grouped by state or rating area. Each class can get its own allowance. Inside a class, terms are the same for everyone, except that the allowance can rise with age up to 3 to 1 and can vary by number of dependents.
Clear the minimum class size
It only matters when some classes keep the group plan.
If one class stays on the group plan and another moves to the ICHRA, an employer with fewer than 100 employees generally needs at least 10 people in each class offered the ICHRA. For a full-time and part-time split, the minimum applies only when one of those two classes keeps the group plan. A seasonal class is exempt, and so is a class made up of a whole state.
Give each class one offer
No picking between plans.
Employees in the same class can't choose between your group plan and the ICHRA. If you want both on the table, they belong to different classes.
Choose premium-only or broader
Decide what the allowance can pay for.
Reimburse premiums alone, or premiums plus eligible medical expenses. The broader version helps employees with out-of-pocket spending, at the price of more administration, and it can get in the way of HSA eligibility. With a premium-only design, employees on an HSA-qualified plan may be able to keep contributing if they meet the other HSA rules. The account rules are on our HRA, HSA and pre-tax page.
Illustrative: a split by pay type
Group plan for salaried, ICHRA for hourly.
A 70-person company keeps its group plan for 24 salaried staff and offers its 46 hourly employees an ICHRA. With fewer than 100 employees, the hourly class needs at least 10 and has 46, so the split clears the minimum. Nobody in either class can take the other offer.
Test every household, not the average.
The allowance is your budget, not a promise of coverage. For each employee, take the premium for a plan they would actually choose, subtract the allowance, and compare what's left with what they pay for your group plan today. Run it for a younger single employee, an older one and a family, in every rating area where you have people.
Illustrative: a $500 monthly allowance against a $430 individual premium leaves the employee nothing to pay in premium, but the leftover $70 doesn't turn into cash; the plan's terms decide what happens to it. The same $500 against a $780 premium leaves $280 a month. Deductibles, copays and coinsurance still apply in both cases.
Tax credits can flip the answer. An employee can't collect ICHRA reimbursements and a premium tax credit in one month, and turning down an affordable ICHRA doesn't bring the credit back for anyone the offer covers. If the offer is unaffordable, the employee can opt out and may qualify for a credit if otherwise eligible. ICHRA affordability has its own test, built on three inputs: the lowest-cost self-only silver plan, the allowance and the employee's applicable income percentage. The plan an employee happens to prefer doesn't enter into it.
Two more checks. A carrier may build different networks for its individual and group products, so verify doctors and prescriptions plan by plan. And the employee's remaining premium on an exchange plan is paid after tax, because Section 125 can't cover it. If the plan is bought off the exchange, a compliant cafeteria plan may let the employee pay the leftover premium pre-tax.
Our ICHRA and QSEHRA employee cost test sets out the full method. We can help employees compare individual plans on Washington Healthplanfinder, and their tax adviser handles reconciliation at tax time.
Count back from the 90-day notice.
Model
Census, individual prices in each rating area and current contributions, set against your group renewal.
Lock the design
Classes, allowance by class and age, premium-only or broader, carryover and the administrator. All of it has to be final before the notice goes out.
Send the notice
Written notice goes out no later than 90 days before the plan year. Some newly eligible employees and new arrangements follow different timing, so have the administrator confirm yours.
Enroll
Being offered a new ICHRA can create a special enrollment opportunity for individual coverage. Confirm each employee's deadline and start date, and keep the group plan until the move is confirmed.
First reimbursements
Employees prove coverage, the administrator verifies it, and payments begin. People may pay the first premium before money arrives, so tell them when to expect it.
Every year after
Individual premiums change, so re-run the cost test and the affordability check before each plan year.
The inputs for a real comparison.
- Census with date of birth, home ZIP code, coverage tier and proposed class
- Current group rates, the renewal and employee contributions
- Your plan year, and the date you need a decision by
- Whether you averaged 50 or more full-time employees plus FTEs last year
- Anyone on Medicare or covered through a spouse
Start with our employee census. If you're an applicable large employer, we'll also line the design up against the ACA compliance checks, and your tax adviser should confirm the final affordability result.
What comes up once the numbers are back.
Can an employee on Medicare use the ICHRA?
Yes, with the right Medicare coverage. Medicare Parts A and B together count, and so does Medicare Advantage. The administrator confirms the documentation and which expenses it will reimburse.
Does a short-term plan or a health care sharing ministry count as individual coverage?
No, and neither does a dental-only plan. In each month they use the allowance, employees must be enrolled in qualifying individual health coverage or Medicare.
Can older employees get a bigger allowance?
Yes. Within a class, the allowance can rise with age, with the highest amount no more than three times the lowest. Apply the same formula to everyone in the class.
We're an ALE. Does an ICHRA take care of the employer mandate?
Only if the design holds up. You still have to evaluate affordability, which employees and dependents receive the offer, and reporting. ICHRA affordability is tested differently from a group plan's, and a modest allowance isn't automatically enough.
What is a CHOICE arrangement?
The same benefit under a newer name. CMS now uses CHOICE arrangement as the name for what was previously called an ICHRA, so expect either label on plan paperwork and federal websites.
Where these rules come from.
Sources: HealthCare.gov: ICHRA and CHOICE arrangements, CMS: HRA questions and answers, CMS: CHOICE arrangement announcement, IRS: HRA regulations, IRS: premium tax credit Q&A, IRS: employer shared responsibility Q&A and Washington Health Benefit Exchange: HRAs and tax credits. General information, not legal or tax advice.
Test an ICHRA against your renewal.
Send a census with ages and ZIP codes. We'll lay out classes, allowances and each employee's net premium next to your group renewal, with no obligation.