ACA Forms › Unpacking Individual Coverage Health Reimbursement Arrangements (ICHRA)
Understanding ICHRA
The IRS initiated the ICHRA with an updated set of guidelines on October 23rd, 2018, and completed its finalization on June 13th, 2019. It became accessible to users on January 1st, 2020. ICHRA is an innovative health benefit available for companies of all sizes. There may be numerous questions arising regarding ICHRA.
What is ICHRA?
Individual Coverage Health Reimbursement Arrangement plans, or ICHRA plans, are relatively new health benefit plans employers can provide to their workforce. ICHRA plans are health plans that employers finance and can be used to cover the healthcare expenses incurred by employees.
ICHRA consists of two key elements:
- Employees can choose the health plan they want
- Employers will set an allowance amount (tax-free) for reimbursing the chosen health plan and related expenses
After selecting a health plan, employees must submit claims for reimbursement. The premium and other expenses will be reimbursed based on the allowance set by the employer. Both the employer and the employee's contributions to ICHRA are tax-exempt.
How does ICHRA compare to other HRAs?
ICHRA excels as a health benefit when compared with conventional HRAs. Below are some of the advantages ICHRA holds over other HRAs.
- ICHRA plans can be used for businesses of all sizes
- Since the allowance amount is predetermined, employers don't need to worry about additional costs
- In contrast to other HRAs, ICHRA gives employees the choice of their health plans
- Employers don't have to give the same allowance to all employees. They can categorize employees and assign different reimbursement allowances
- Providing ICHRA to all employees is optional. Employers can offer ICHRA to select employees, and group plans to others
Which employees are eligible for ICHRA?
When providing an Individual Coverage Health Reimbursement Arrangement (HRA), it's mandatory to maintain consistent terms for all members within an employee classification. However, the amount provided may be adjusted upwards for older employees or those with more dependents.
It's important to note that you cannot simultaneously provide the same employee an Individual Coverage HRA and a traditional group health insurance plan. Yet, you have the discretion to distribute an Individual Coverage HRA to certain employee groups while opting for a traditional group health plan or no coverage at all for others.
Employers are free to make distinctions, using classes based on the following status:
Full-time & Part-time Employees
Seasonal & Temporary employees
Salaried workers & Non-salaried workers
(hourly workers)
Employees working in the same geographic location
Non-resident aliens with no U.S. based income
Employees who have not satisfied a waiting period
Any group of employees formed by combining two or more of these classes
Employees in a unit of employees covered by a particular collective bargaining agreement
For more details about ACA Reporting Requirements, click here.
How is ICHRA affordability assessed?
ICHRA Affordable Calculation > Lowest Cost Silver Plan - (9.12% * Employee Household income)
ICHRA affordability varies for each employee and is based on three factors:
Lowest Cost Silver Plan
ACA Affordability Percentage
Employee Household Income
Since employers cannot know the employee's household income, the following safe harbors can be used to assist in determining employee household income affordability:
The Lowest Cost Silver Plan is a benchmark plan. The IRS has recommended the following safe harbors to determine for each employee:
Location
May use employer address instead of employee address
Age-Based Bands
Previous Year
using 2023 to calculate 2024
Based on these calculations, if the ICHRA is affordable for the employee, they are ineligible for Premium Tax Credits (PTC). If the ICHRA is not affordable, the employee can opt for ICHRA or the Premium Tax Credits (PTC).
What are the Affordability Percentage Rates?
| Tax Year | Affordability Percentage |
|---|---|
| 2015 | 9.56% |
| 2016 | 9.66% |
| 2017 | 9.69% |
| 2018 | 9.56% |
| 2019 | 9.86% |
| 2020 | 9.78% |
| 2021 | 9.83% |
| 2022 | 9.61% |
| 2023 | 9.12% |
What are the regulations and guidelines for ICHRA?
Here are the rules and regulations proposed for ICHRA:
All employers, regardless of the size of their workforce, can offer ICHRA
There are no restrictions on the monthly reimbursement amounts for ICHRA
ICHRA can be offered at any time throughout the year
Different reimbursement allowances and benefits can be offered to employees under various categories
When ICHRA is unaffordable, employees can opt for ICHRA or receive Premium Tax Credits
If ICHRA is affordable, employees are ineligible for Premium Tax Credits
Employees should have an opportunity to decline the monthly reimbursements once annually
ICHRA will not cover the reimbursement for certain health care costs, such as copay, deductible, short-term, limited-duration insurance, and dental or vision-related costs
Employers who offer ICHRA must fill out forms 1095-B and 1095-C. To learn more about 1095-C codes, click here.
ICHRA Code Definitions
| Code | Definition |
|---|---|
1L |
ICHRA offered to Employee (EE) only Affordability is determined by using EE's primary residence location ZIP code |
1M |
ICHRA offered to EE and dependents (not spouse) Affordability is determined by using EE's primary residence location ZIP code |
1N |
ICHRA offered to EE, spouse, and dependents Affordability is determined by using EE's primary residence location ZIP code |
1O |
ICHRA offered to EEs only Using the EE's primary employment site ZIP code affordability safe harbor |
1P |
ICHRA offered to EE and dependents (not spouse) Using the EE's primary employment site ZIP code affordability safe harbor |
1Q |
ICHRA offered to EE, spouse, and dependents Using the EE's primary employment site ZIP code affordability safe harbor. |
1R |
ICHRA that is NOT affordable offered to EE; EE and spouse, and/or dependents |
1S |
ICHRA offered to an individual who was not an FTE |
1T |
ICHRA offered to EE and spouse (not dependents) Affordability is determined using EE's primary residence location ZIP code |
1U |
ICHRA offered to EE and spouse (not dependents) Using EE's primary employment site ZIP code affordability safe harbor |
For broken-down examples of ACA IRCHA Codes on Form 1095-C, download our PDF Code IRCHA Series Guidance.
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BoomTax and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors prior to engaging in any transaction.
