ICHRAs Explained for California Small Businesses

More and more California small businesses are asking about Individual Coverage Health Reimbursement Arrangements (ICHRAs). They are receiving more media attention, particularly in light of the Trump administration proposal to rename them Choice Arrangements. (These should not be confused with group health insurance marketed in California by CaliforniaChoice.)

What are ICHRAs?

An ICHRA lets employers provide monthly tax-free reimbursements to employees. They can be used to pay for an employee’s health insurance premiums as well as qualified medical expenses. It is worth noting that spouse plan premiums are not an eligible ICHRA expense.

Which Health Plans Are Eligible for ICHRA Reimbursement?

Eligible employee health plans include:

• Major medical insurance purchased through the Covered California public exchange (Bronze, Silver, and Gold tiers only – not Platinum)
• Medicare Parts A + B, or Part C
• Catastrophic health plans (limited to those employees who qualify for a hardship extension or those under age 30)
• Student health insurance (visit HealthCare.gov for additional information)

ICHRA Eligible Medical Expenses

“Qualified medical expenses” are defined by the Internal Revenue Service in publication 502. Among the dozens of eligible expenses are:

• Ambulance services
• Blood tests and transfusions
• Braces
• Contacts and eyeglasses
• Copays
• Dental treatment
• Doctor visits
• Gynecologist
• Obstetrician
• Ophthalmologists and opticians
• Oral surgery
• Prenatal care
• Prescription medications
• Surgeries (non-cosmetic)
• Vaccines
• X-rays

Additional covered treatments and services are described in detail on the IRS website.

How Does an ICHRA/Choice Arrangement Work?

• Employer Contribution: You determine your own fixed monthly contribution to employees’ ICHRAs. This helps you control your employee benefits budget.
• Employees Choose Coverage: Employees buy their own health coverage. They can purchase it through the state’s Affordable Care Act (ACA) marketplace (Covered California) or directly through an insurance company or broker.
• Tax Benefits: Funds reimbursed to employees are free of payroll and income taxes. Your contributions and reimbursements are 100% deductible as a standard business expense.
• Participation: There are no minimum employee participation requirements.

Calculating ICHRA Affordability

If your employer-sponsored ICHRA meets the federal affordability standard, the lowest-cost self-only Silver plan minus the ICHRA contribution must cost 9.96% or less of the employee’s annual household income.

If it costs more, it is not considered affordable and your employees cannot claim a Covered California premium tax credit. The employee must choose the ICHRA reimbursement instead.

Visit the Covered California web page on HRAs and QSEHRAs for more information.

Comparing ICHRAs and Group Health Insurance

We have crafted another blog post, ICHRA vs. Group Health Insurance: Which Is Better for Small Business, ADD LINK WHEN POSTED; UNPOSTED LINK IS https://www.mycalchoice.com/?p=6895&preview=true that provides more information and guidance.

Talk With Your Broker to Learn More

To learn more about ICHRAs or the cost of Group Health Insurance from CaliforniaChoice, talk with your employee benefits broker. CaliforniaChoice is different from most traditional group health plans because it puts you in charge of your costs. Like an ICHRA, you decide what amount you want to put toward employees’ health coverage. If you don’t already have a broker, CaliforniaChoice makes it easy to search for one online.