A relatively new phenomenon in the employee benefits world is the Individual Coverage Health Reimbursement Arrangement or ICHRA. This program is an employer sponsored plan that employers can implement to reimburse employees for individual health insurance premiums and out-of-pocket medical expenses tax free. Although, they have been around since 2020 they are really starting to take off as a cost-effective alternative to traditional group health plans. The ICHRA has no reimbursement caps and meets ACA employer mandate requirements. The ICHRA has sizeable tax benefits to both the employer and employee. First of all, reimbursements are tax deductible for the employer and are not taxed as income to the employee. Employee premium amounts that are above the employer reimbursed amount are pre-taxed through a section 125 plan. This reduces the employee’s taxable income and increases their take-home pay. The employer’s FICA tax is reduced by 7.65% for each dollar run through the section 125 plan.
For employers there are several advantages of offering an ICHRA. Cost predictability with fixed reimbursement, tax deductibility of contributions, simplified administration, and customizable options. For employees, tax free reimbursements, portability of individual policies and customizable plan options. Implementing an ICHRA gives employees the freedom to choose the individual health insurance plan that meets their needs.
There is a wide range of plans with different deductibles, networks, copays and coinsurance options offered by multiple carriers in Minnesota. Twin City Underwriters can help employees navigate their individual options and find a plan that will provide the coverage they need for their specific situation.
If you know a company struggling with rising employee healthcare costs, please tell them to contact Dean at 651-262-5077 or dhanson@tcunderwriters.com