Rising group health insurance premiums are pushing employers of all sizes to look for alternatives. Individual Coverage Health Reimbursement Arrangements (ICHRAs) have emerged as one of the most compelling options available today.
Here’s what you need to know.
What Is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded benefit that reimburses employees tax-free for individual health insurance premiums and qualified out-of-pocket health care expenses.
Introduced for plan years beginning on or after January 1, 2020, under final regulations jointly issued by the IRS, the Dept. of Labor, and the Dept. of Health & Human Services, ICHRAs are available to any employer – regardless of size – and carry no restrictions on employee participation levels or reimbursement funding amounts.
Unlike a traditional group health plan, the employer doesn’t purchase or manage an insurance policy. Instead, the employer sets a defined monthly contribution amount. Employees use those funds to buy the individual coverage that fits their needs…through the ACA Health Insurance Marketplace or directly from a carrier.
How It Works: Four Steps
Step 1: The employer sets a flat monthly contribution.
The employer decides how much to contribute each month per employee. There are no surprise renewal increases. No minimum contribution requirements. The employer controls the budget; not the insurance carrier.
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Step 2: The employee selects their own insurance policy.
Employees shop for coverage from the carrier, plan, and network of their choice. They can access plans through the ACA Marketplace or off-Exchange. This freedom to choose is one of the most attractive features for employees.
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Step 3: The employee enrolls in their plan and the ICHRA
Once the employee selects coverage, they enroll in both their health insurance plan and the ICHRA itself. Diversified offers enrollment assistance for clients who need it.
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Step 4: The employee receives reimbursement.
The employer’s monthly contribution is reimbursed directly to the employee (typically for premium payments). Any leftover funds may also be available for eligible out-of-pocket expenses depending on plan design.
What Brokers Need to Know: Agent of Record
One of the most important things to understand as a broker: you retain the Agent of Record status when your client implements an ICHRA through Diversified. We handle the administration. You maintain the client relationship.
Why Diversified?
Not all ICHRA administrators are built the same. Our Next Generation ICHRA platform was designed for efficiency and accuracy:
- Automated, direct-deposit reimbursements to employees – eliminating claim delays and reducing administrative errors
- Comprehensive processing – covering premiums (including Medicare) and eligible out-of-pocket expenses
- Tailored plan design – customized to the needs of each employer
- Dedicated service – assigned Claims Specialists for every client, employee education, and on-site support
As Wisconsin’s first TPA for account-based benefit plans (since 1987), Diversified brings the experience and infrastructure to make ICHRA administration seamless.
The Bottom Line
ICHRAs give employers budget control and employees freedom. They work for small businesses priced out of group plans, growing companies needing scalability, multi-state employers, and large organizations shifting to a defined contribution model.
For brokers, they’re a powerful conversation-starter with clients who are frustrated with traditional group health insurance costs.
Interested in learning how to add ICHRA administration to your client offerings?https://www.dbsbenefits.com/broker-resources/ichra/