Wondering what the maximum ICHRA contribution could be?

Introduced in 2020, Individual Coverage Health Reimbursement Arrangements (ICHRA) are a new form of group health benefits. In an ICHRA, an employer contributes a set dollar amount to reimburse employees for individual health insurance premiums and/or qualified medical expenses. There is no limit to an employer’s maximum contribution.

ICHRAs have taken off through widespread adoption by employers across various industries. Currently, the adoption of an ICHRA is not correlated with any industry type or specialization. Although, we have reported that blue-collar, hospitality and low-wage employee-driven industries stand to benefit largely more than others in our white paper entitled “ICHRA Market Investigation”. The same paper also emphasized that smaller employers would also stand to gain from the adoption of an ICHRA.

There are no participation limit requirements to be concerned with when setting up an ICHRA. Which is one reason why over 80 percent of our stakeholders (comprised of companies varying in size) report that an ICHRA offers more flexibility than a traditional major medical plan. Whether you’re refreshing your knowledge or getting caught up to speed, our email newsletter is a great way to get back in the loop.

QSEHRAs (benefits similar to an ICHRA in many ways) have caused a bit of confusion on the topic of maximum contributions. QSEHRAs do have a contribution cap that employers cannot go over. To clear the air, brush up on The Differences between QSEHRA and ICHRA.

Is there a specified minimum to the employer ICHRA contribution?

The answer is: that depends. While there isn’t a required minimum, a contribution to an ICHRA should be meaningful.

You can also look at ICHRA’s minimum contribution limits which are regulated by affordability rules. Knowing these rules and abiding by compliance guidelines will keep your groups from facing heavy compliance fines, allowing them to maximize the tax advantage.

The Affordable Care Act (ACA) requires that employers of over fifty full-time (including full-time equivalent) workers must offer those workers health insurance (known as the Employer Mandate). In order to be considered affordable under this mandate, a plan must not cost more than 9.61 percent (in 2022) of the employee’s household income, after subtracting the monthly contribution.

Affordability Calculation: Monthly cost of the lowest-priced silver plan on the market less monthly contribution from company < 9.61% of employees’ monthly household income

So how would you know what the minimum threshold is? You won’t have access to an employee’s household income. Thankfully, the IRS stipulates three different safe harbors for you to use in place of household income. To learn more about those figures, and navigating the brokerage of an ICHRA, read our article “How to Broker an ICHRA in 2021”.

After all that, an employer does not have to follow the affordability rules. But they will then be subject to fines as outlined by the ACA.

Individual Coverage HRAs are becoming known for being flexible. In this case, they allow employers the ability to determine the contribution that is right for them and their employees. And they can do that without worrying about going over a preset maximum.