An increasing number of employers are realizing the benefits of offering their employees an Individual Coverage Health Reimbursement Arrangement (ICHRA) rather than a traditional health insurance plan.

ICHRAs offer employers immense flexibility, cost control as well as potential cost and tax savings. They also provide employees with choice and potential cost and tax savings.

Employers that are setting up an ICHRA for the first time, though, may find some challenges simply because it is new to them.

Below, we’ll dive into some of the common ICHRA mistakes employers make and how to avoid them.

Not Classifying Employees Properly

A major advantage of ICHRA plans is that employers can set up employee classes and dedicate a different reimbursement amount to each. You can divide your employees with full-time workers in one bucket and part-time and seasonal workers in another, for example.

It’s possible to also separate employees into classes based on location, department or more.

A common mistake that employers make is either not classifying their employees properly, or not separating them into classes at all.

The former situation could cause major issues with IRS compliance or even serious violations of non-discrimination laws.

The latter is a missed opportunity for employers to save money while at the same time increasing their employee recruitment and retention efforts by offering benefits to, say, part-time workers.

Not Offering Enough of a Reimbursement

While ICHRA plans are an effective way for employers to save money on health insurance costs, it’s still important to offer sufficient reimbursement amounts to employees.

Employers can determine the reimbursement amounts they want to give each class of employees. If they don’t offer enough, though, it could not meet employee needs.

ICHRA reimbursements don’t have to cover the entire cost of health insurance premiums, but they should help offset them enough so they’re affordable for employees. If they don’t, current and prospective employees may not be interested in joining or staying at your company.

Research what the average cost of purchasing individual health insurance is in your area, and then adjust your company’s ICHRA reimbursement amounts based on that. Don’t forget to do this on an annual basis, too, as health insurance costs can change rapidly.

Not Clearly Explaining the Plan to Employees

Many employees are familiar with group health insurance plans. ICHRA plans might sound like a foreign concept to many as a result.

If employees aren’t given the proper information about what the plan is, how it works and why it benefits them, they could easily become confused and frustrated with you.

Ultimately, the goal of any employer-sponsored health insurance plan is to have employees participate in it. So, it’s always important to clearly explain what an ICHRA is, how employees can obtain their own health insurance plans, how they get reimbursed and at what levels, and other details of it.

Companies can set up formal meetings and seminars to give a general overview of their ICHRA plan, create a FAQ about it and offer employees the opportunity to have a consultation about the plan with someone from HR to address specific concerns they may have.

Not Setting Up Proper Reporting

Just like other aspects of accounting, it’s essential to set up processes to properly track ICHRA contributions. This documentation is necessary so you can report them annually come tax time.

If you don’t have the proper processes in place, you could find yourself out of sorts when you go to file your taxes or if you’re facing an audit. Not having the right systems in place could also lead to being out of compliance with IRS requirements.

All companies that offer an ICHRA to their employees should have a set system in place where they can easily track all ICHRA reimbursements for later reporting. While you could consider purchasing software specifically for this purpose, it may also benefit your company to work directly with a benefits company that specializes in ICHRA plans.

Avoid Common ICHRA Mistakes by Working with Beckham Ellis Insurance Group

ICHRA plans can provide big advantages for employers and employees alike, especially at a time when health insurance costs continue to rise every year. Tax and cost savings, flexibility and choice are all reasons why these plans can prove beneficial.

At the same time, if you don’t properly set up your plan, communicate its details to your employees and track your contributions properly, you could make some common mistakes that other employers make.

When you work with Beckham Ellis Insurance Group, you can avoid making these mistakes and create an ICHRA plan that works well for your company and its employees. Our professionals are experienced with all types of insurance plans and can provide expertise on the important details of ICHRAs.

If you’re located in the Georgia or South Carolina region, contact us today to learn more.