Understanding what ICHRA means, how it works, its benefits for businesses, and the role of a HRA administrator like Vitable.

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What does ICHRA Mean?

ICHRA is short for Individual Coverage Health Reimbursement Arrangement. ICHRA is a type of HRA (Health Reimbursement Arrangement). It is a structured group health plan that enables organizations to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses, regardless of size. Unlike traditional group plans, ICHRA is a flexible and cost-effective benefit model. By implementing ICHRA, employers can offer employees more autonomy by helping them purchase their preferred individual health coverage independently. One that fits them and their unique needs best, versus a one-size-fits-all plan.

Alongside other IRS-approved HRA types like QSEHRA, EBHRA, and the Standard HRA, ICHRA is designed to help employers contribute toward their teams’ healthcare costs without the complexity or cost of a traditional group health plan.

What does Individual Coverage Mean in ICHRA?

The "individual coverage" in Individual Coverage Health Reimbursement Arrangement (ICHRA) refers to the employee’s responsibility to enroll in their own health insurance plan, typically through the individual marketplace or a private insurer. Unlike traditional group health plans, where employers select and offer a one-size-fits-all policy, ICHRA allows each employee to choose a plan that fits their unique healthcare needs.

Employers, in turn, offer a defined monthly or annual allowance to reimburse employees for part of the cost of that individual health insurance plan. This model gives employees more freedom and flexibility, while employers maintain cost control and simplify benefits administration.

By empowering employees to pick their own coverage, ICHRA promotes personalization, satisfaction, and better alignment between healthcare choices and individual preferences—all without the complexities and rising costs of group plans.

How does ICHRA work?

To understand how ICHRA works, let's break down the process into four key steps:

1. Employers design their benefits

Employers design their ICHRA benefits based on the needs of their employees and the company. This involves determining the amount of money offered to employees each month as a set allowance and deciding which expenses are eligible for reimbursement. Employers can also provide different benefits to employees in other groups based on their specific requirements.

2. Employees purchase a healthcare plan

Once the ICHRA benefit is set up, employees who opt into the ICHRA plan can use their allowance to purchase individual health insurance coverage and other qualifying medical expenses. The employer determines the range of out-of-pocket eligible expenditures, with some flexibility to limit certain items according to preference.

3. Employees submit expense documentation

After making their purchases, the employee must submit documentation of the payments they wish to be reimbursed. This documentation typically includes the name and cost of the item or service, the vendor's name, and the date of purchase. Invoices, receipts, or explanations of benefits from insurers or healthcare providers usually fulfill these requirements.

4. Employers review and reimburse expenses

Employers (or their HRA administrator, like Vitable) review the costs submitted and approve or reject reimbursement requests. Qualified expenses are then reimbursed up to the employee's accrued allowance. Employers often reimburse employees through payroll by adding a non-taxable line item to their paychecks, although other payment methods are possible.