Businesses today are always looking for new and creative ways to offer their employees an attractive benefits package. With the cost of healthcare rising almost every year — and sometimes significantly so — it’s becoming increasingly harder to do so, though.

What many businesses have done is abandon the traditional employer-sponsored group health insurance plans in favor of what’s called an ICHRA, or an Individual Coverage Health Reimbursement Arrangement.

ICHRAs provide both employers and employees with many advantages, including the ability for employees to choose health insurance coverage that works for them and their families.

These plans also offer many tax advantages, which we’ll describe in more detail below.

What is an ICHRA?

Unlike a traditional employer-sponsored health insurance plan, an ICHRA puts the power of choice in the hands of employees.

Companies don’t offer their employees specific health insurance plans that they can choose from. Instead, they offer a certain amount of money that is used to reimburse employees for their out-of-pocket health-care costs, which can include premiums, copays and other eligible expenses.

This provides employees with an unmatched level of flexibility. They are able to choose the health insurance plan that’s best for them and their family from a wide selection, rather than just two or three plans their employer’s plan offers.

ICHRAs provide companies with a lot of flexibility as well.

They have the ability to choose a set amount of money they will contribute to the plans, which provides them with cost certainty. Even if health-care costs increase significantly from year to year, employers are able to budget in a set amount of reimbursement increase so they aren’t blind-sided by extreme rises.

Employers can also offer different reimbursement amounts to different employee classes, which allows them to offer benefits to full-time, part-time and seasonal workers.

Tax Advantages of ICHRA for Employers

There are many tax benefits that employers can take advantage of when they offer their employees ICHRAs.

First, all contributions that the employer makes to ICHRA plans count as business expenses. This means they can be written off on taxes, which reduces the company’s taxable income for the year.

ICHRA plans also aren’t subject to any payroll taxes. This includes federal unemployment, Medicare and Social Security taxes that all businesses are required to pay on behalf of their employees.

Not only that, but ICHRA plans don’t have an annual limit for how much employers can contribute. This is quite different from Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), which are popular benefits companies can offer their employees to reduce the cost of health care.

This essentially means that companies can customize the benefits they offer employees based on what the employee needs are and what the business’ budget is. Flexibility like this is one of the biggest advantages that ICHRA plans offer overall.

Tax Advantages of ICHRA for Employees

Employees also enjoy many tax advantages from ICHRA plans.

All reimbursements that employees receive from their employers are completely tax free, as long as they choose a health insurance plan that meets what’s known as MEC, or minimum essential coverage — a standard that was set by the Affordable Care Act (ACA).

This can end up being a significant amount of money for employees that they don’t have to claim as taxable income. It even includes the premium that they pay for their health insurance plan on a monthly basis.

ICHRAs are typically very advantageous for employees. However, one of the potential downsides is that the reimbursement money employees receive from their employers usually disqualifies them from receiving a PTC, or premium tax credit, that may be offered to them on federal or state health insurance exchanges.

That being said, employees can usually decide to opt out of their company’s ICHRA plan, which would then allow them to qualify for the PTC, if it’s more advantageous to them financially.

Offer Your Employees an ICHRA with the Help of Beckham Ellis Insurance Group

ICHRA plans are becoming increasingly popular among employers who are looking to increase their flexibility and cost certainty when it comes to health insurance while also taking advantage of the many tax benefits they provide.

When you partner with Beckham Ellis Insurance Group, you can rest assured knowing you’re getting the best advice possible about ICHRA plans and all other aspects of employee benefits.

To learn more and speak with our team of experienced professionals, contact us today.