ICHRA Unleashed: Transforming Small Business Health Benefits

The individual coverage health reimbursement arrangement (ICHRA) allows businesses of all sizes, from large corporations to small businesses like yours, to reimburse employees for their personally purchased health insurance expenses.

The ICHRA is particularly beneficial for businesses with fewer than 50 employees because they are not obligated to provide health benefits under the Affordable Care Act. But when they do provide coverage, they expose themselves to a $100-per-day penalty for each employee. The ICHRA avoids this penalty.

The ICHRA offers several benefits to the employer, including

• the flexibility to choose the reimbursement limits,
• the ability to offer different plans to different employees based on classifications, and
• the ability to offer a cafeteria plan that allows employees to pay pre-tax for additional insurance coverage above what the ICHRA reimburses.

There are restrictions on who can participate. Employees eligible for an ICHRA are those enrolled in individual exchange coverage, other individual insurance coverage, or Medicare. More-than-2-percent S corporation shareholders, their family members, and Form 1040, Schedule C taxpayers are not eligible to participate in an ICHRA.

If you plan to offer an ICHRA, you need to provide your employees with at least a 90-days’ notice before the beginning of the plan year. We encourage you to start planning now if you wish to offer an ICHRA on January 1, 2024, as this gives you a target date for the ICHRA notice of October 2, 2023.