The Individual Coverage Health Reimbursement Arrangement (ICHRA) is becoming a popular alternative to traditional group health plan coverage.

It is important for employers to understand how this arrangement interacts with Medicare to be able to implement the ICHRA properly and to avoid potential compliance issues.

ICHRA basics

• Employers of any size can reimburse employees, tax-favored, for individual health insurance premiums and qualified medical expenses
• No cap on reimbursement amount
• Can be offered alongside a traditional group plan, as long as employees are not given a choice between the two
• To use ICHRA funds, an employee must be enrolled in individual health coverage

Medicare counts as qualifying coverage

• Medicare Parts A, B, and C all count as "individual health insurance coverage" for ICHRA purposes.
• To satisfy the ICHRA requirement, an employee needs either Part A + Part B together, or Part C (Medicare Advantage) alone
• Part D by itself does not satisfy the coverage requirement — though Part D premiums can still be reimbursed as a qualified medical expense if the plan document allows it
• Medicare-enrolled employees (or Medicare-eligible dependents) can be reimbursed through the ICHRA for:
  • Part B premiums,
  • Part D premiums,
  • Medicare Advantage premiums, and
  • Medigap/Medicare Supplement premiums
  • plus other eligible out-of-pocket costs, depending on plan design

Class rules — a key compliance trap

• Employers can offer ICHRAs to specific classes of employees, but classes must follow the job-based categories set out in federal regulation (29 CFR § 2590.702-2(d))
• Medicare status alone cannot define a class. Employers cannot create an ICHRA class based purely on whether someone is or isn't enrolled in Medicare — classification must be based on the permitted job-based criteria instead

Takeaway for benefit consultants

• ICHRAs are a tax-efficient way to offer Medicare-enrolled employees benefits, but proper design (especially around employee classes) is essential to avoid compliance risk

Resources

• Amwins ICHRA Compliance Guide
• Health Reimbursement Arrangements (HRAs) | Internal Revenue Service

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