Offering a valuable benefits package with health insurance to employees is necessary to attract and retain top talent today. However, doing so may be prohibitive for some small businesses, especially as the cost of providing these benefits continues to skyrocket.

In the past, small businesses had a difficult choice — either bite the financial bullet and offer an employer-sponsored health plan, or don’t offer one and take the chance that employees would still want to work for them.

Thanks to the introduction of Individual Coverage Health Reimbursement Arrangements, or ICHRAs, in 2020, small businesses today have another option. Many small businesses find that ICHRAs are attractive to employees and affordable for them at the same time.

Let’s take a look at how ICHRAs work for small businesses.

What is an ICHRA?

The IRS introduced ICHRAs in 2020 as an option for businesses that wanted to offer their employees an alternative to the traditional group health insurance plan. These plans are account based, and they allow employers to reimburse their employees for qualified medical expenses.

Businesses have the flexibility to decide how much they want to offer employees every month, and employees can use this money freely to pay for monthly health insurance premiums and other out-of-pocket expenses such as co-pays and deductibles.

The IRS doesn’t set a minimum or maximum contribution amount for employers, either, which provides small businesses with a lot of flexibility when it comes to these plans. This gives businesses a lot of control over their costs, since they can set a predetermined reimbursement amount, rather than being subject to the whims of the health insurance market.

How Does an ICHRA Work for Small Businesses?

Unlike a traditional group plan, employers don’t select the health insurance plans that their employees can choose from. Instead, employees purchase health insurance on their own, and then can use the ICHRA reimbursement amount to offset some of the costs of the premiums, and use any leftover money toward other medical-related expenses.

The contributions to ICHRA plans are tax-free for employees, and employers can deduct them on taxes as well.

Another great aspect of ICHRAs is that employers can offer them to different employee classes — and can even offer different reimbursement amounts to different classes.

For example, you might want to separate full-time workers from part-time and seasonal workers, offering a different reimbursement amount to each class. What this does is reward full-time employees more while still offering health reimbursements for your other employees.

This could be a great recruitment tool for small businesses that rely on part-time and/or seasonal workers, as these classes of workers traditionally wouldn’t be offered health insurance at all.

Employers also have the option of offering both a traditional group plan and an ICHRA. The only limitation to this is that companies can’t offer the choice between the two to the same employee class.

In other words, employers can offer a traditional group health plan to their full-time employees and then an ICHRA to their part-time and/or seasonal workers. They just can’t offer their full-time employees the choice between a group plan and ICHRA, for instance.

Again, this is a great way for small businesses to offer health insurance coverage without breaking the bank.

What Are Some of the Other Benefits of ICHRAs for Small Businesses?

We have already pointed out some impressive benefits that ICHRAs provide small businesses, including flexibility, cost control and tax advantages. There are many others, too, that employers can realize by offering this type of health insurance plan.

First, ICHRAs significantly reduce the administrative work associated with health insurance plans. These plans don’t require a lot of complicated paperwork like group health insurance plans do, as employers won’t handle the processes of finding available insurance plans, educating their employees about them, doing enrollments and answering questions throughout the year.

Instead, employees will search for their health insurance coverage on their own, and they will deal directly with the carrier that provides it to them.

This choice and control for employees is also another benefit for employers.

Many employees prefer this level of freedom and flexibility, as they can choose a health insurance plan that fits them and their needs well. Employer-sponsored group health plans can be rather restrictive in this regard, since they need to take into consideration the needs of all employees.

Employees can even purchase their health insurance coverage from the federal or state health marketplaces, though they may not qualify for premium tax credits, depending on the details of the ICHRA reimbursements.

Figure out whether ICHRAs are Right for You with Beckham Ellis Insurance Group

ICHRAs are gaining popularity among employers, especially small businesses that faced a challenging predicament before these plans were offered. Now, they can still offer their employees health insurance reimbursements while limiting the costs of doing so.

If you’re wondering whether ICHRAs are right for your small business, you should work with Beckham Ellis Insurance Group. Our team of experts can walk you through the process of how ICHRAs work, what benefits they would provide to you and your employees, and whether this plan would be a good option for you.

If your business is located in the South Carolina or Georgia region, contact us today to learn more.