ICHRA, or an individual coverage health reimbursement arrangement, has numerous strategies for how it can reimburse individual premiums. Setting up an ICHRA reimbursement plan for your employees is easy once you know these strategies. Some strategies employ reimbursing a flat dollar amount by class of employee, reimbursing a percentage of a rate table of a specific Individual Health Plan, and utilizing the 3:1 ratio built into the ICHRA Regulation.
ICHRA Reimbursement Strategy #1: Flat Reimbursement
This is one of the easiest ways to set up an ICHRA reimbursement plan. The employer has the ability to pick a flat dollar amount based on its own set budget. The reimbursement strategy can then be applied per class of employee as indicated below:
- Salaried employees: $600
- Full-Time Hourly employees: $400
ICHRA Reimbursement Strategy #2: Using a Percentage of a specific carrier’s Individual policy premium rate table.
This strategy is like some strategies employed by a traditional group plan method in which the employer can indicate a certain percentage of the rate table per age of employee for their reimbursement method. For clarity in this strategy, another column would be provided to indicate employer reimbursement in dollars.
Using a percentage of an age-banded rate table could provide relief to the employers’ budget provided they follow the 3:1 ratio strategy below.
ICHRA Reimbursement Strategy #3: Tiered Contribution using the 3:1 Ratio
The three-to-one ratio is an ICHRA reimbursement strategy that assists with the management of premium prices as your team members age. Since Individual Insurance Rates in most states are “age-banded,” meaning the cost of insurance increases based on age (see above), the departments governing ICHRA decided to help mitigate the costs by implementing this ratio.
In simplest terms, breaking it down by thirds, the oldest demographic cannot be reimbursed more than three times the youngest demographic.
Tiered Amount Examples:
- Ages up to 29: $100 ICHRA Reimbursement
- 30-45: $200 ICHRA Reimbursement
- 46+: $300 ICHRA Reimbursement
This strategy can be implemented by utilizing and expanding upon the above-Tiered scenarios. Some strategies use Age Banded rates from a specific Individual Health Insurance Policy as a benchmark plan ensuring that the dollar amounts for the younger or older demographic are brought either up or down to align with the 3:1 ratio Rule.
Metrics for Budgeting
The flat ICHRA reimbursement strategy costs could add up quickly for the employer. For instance, the employer offers a $300 reimbursement for all Salaried and Full-Time team members’ premiums. If they have 5 employees, this would be a $1500 budget monthly or $18,000 annually.
Employing the 3:1 ratio strategy, they could offer all Salaried and Full-Time team members premiums based on their age. Using the brackets above, they employ 2 team members that fall under 29, 1 team member in the 30-45 age group, and the rest in the 46+ age group. Their monthly budget would be $1000 monthly or $12,000 annually.