A Small Business Guide to Successfully Administering an ICHRA
- Small Business Benefits
- Feb 5
- 5 min read
Offering an Individual Coverage Health Reimbursement Arrangement (ICHRA) is a strategic way to elevate your employee benefits while maintaining flexibility in managing healthcare costs. These arrangements allow employers to reimburse individual health insurance premiums and qualified medical expenses tax-free, giving employees the freedom to choose insurance plans that work best for them.
While the benefits are compelling, administering an ICHRA requires navigating federal regulations, maintaining compliance, and developing processes for seamless operation. This comprehensive guide will walk you through everything you need to know about setting up and managing an ICHRA effectively, while also showcasing how Small Business Benefits of Michigan (SBBMI) can make the entire process easier.
Table of Contents
Creating a Compliant ICHRA Plan Document
The foundation of ICHRA administration starts with crafting a legally compliant plan document. The federal government classifies ICHRAs as group health plans, which means compliance with ERISA (Employee Retirement Income Security Act) and additional Affordable Care Act (ACA) requirements is essential.
Your plan document should outline all administrative and operational details. Core elements include:
Fiduciary and Administrative Roles: Clearly name fiduciaries and administrators alongside their responsibilities.
Funding and Reimbursement Rules: Define how much will be reimbursed, what expenses are eligible, and how reimbursement requests should be submitted.
Regulatory Compliance: Address ACA requirements (especially pertinent for Applicable Large Employers, or ALEs) and mention other relevant federal guidelines.
Plan Modifications: Include clear processes for amendments to the plan.
Additional Recommendations for Clarity
It’s helpful to expand your plan by including the following details to avoid employee confusion or disputes later on:
Eligibility Guidelines for employee classes (e.g., full-time, part-time, seasonal, remote).
Coverage Periods indicating when employees begin and end participation.
Benefit Explanations outlining reimbursable medical expenses.
Claims Submission Process specifying acceptable documentation and timelines.
Plan Termination Protocols for when ICHRA offerings are discontinued.
Well-documented details not only ensure compliance but also reduce administrative back-and-forth with employees. If you’re unsure where to start, SBBMI offers expert guidance and automation tools to create tailored, IRS-compliant plan documents.
Communicating With Employees
Transparency is key to the success of an ICHRA. Employees must receive written notice of their eligibility at least 90 days before the start of the plan year. For newly eligible employees—new hires or those who change roles—this notification must be provided promptly.
Your ICHRA Employee Notice Should Include:
Total Contributions allocated by the employer.
Plan Terms explaining what’s covered and how employees can utilize the benefit.
Opt-Out Rights to ensure employees understand they can decline future reimbursements if desired.
Impact on Premium Tax Credits (PTCs), including how enrollment in an ICHRA may affect their ability to claim PTCs on the Marketplace.
Affordability Assistance explaining steps to compare the ICHRA offering to Marketplace plans, particularly the lowest-cost silver-tier options.
Medicare Coordination guidance for employees eligible for Medicare.
Claims Substantiation Processes detailing what documentation is required and how reimbursements are handled.
Practical Communication Tips
Keep It Simple – Avoid excessive jargon; make your notices easy to understand.
Provide Ongoing Guidance – Offer educational sessions, webinars, or written FAQs to ensure employees know how to use the benefit effectively.
Use Automation – Tools, like those offered by SBBMI, can automate notification creation and delivery, ensuring compliance and saving time.
By proactively educating your workforce, you equip them to make informed decisions about their healthcare coverage.
Administering an ICHRA Efficiently
Administering an ICHRA demands hands-on attention to ensure compliance with federal standards and to meet employee expectations. Unlike traditional group health plans managed by insurance carriers, ICHRAs put more responsibility back in the hands of the employer. The following are key considerations for smooth management.
Managing Employee Eligibility and Changes
New Hires must receive their eligibility notices within the required timeframe.
Departures and employee role changes require immediate attention. Ensure departing employees' outstanding reimbursements are processed and records are updated.
COBRA Obligations apply for businesses with 20 or more employees or smaller companies navigating specific state laws. You must offer continuity coverage for eligible employees leaving the company.
Reimbursing Claims Effectively
Every reimbursement request should be reviewed for compliance with IRS requirements. Required documentation includes details on the service or product, the date it was incurred, and proof of payment.
Decline Non-Qualified Claims with clear explanations and guidance for resubmission.
Automate Reimbursement using a platform like SBBMI’s to reduce manual workload and ensure accuracy.
Maintaining Records and Compliance
Safeguard records for a minimum of seven years, including reimbursements, eligibility notices, and claims documentation.
Protect HIPAA-compliant patient information to avoid legal consequences.
Learn more about these compliance guidelines.
Streamlining these processes requires robust organizational tools and expertise. SBBMI offers platforms designed to automate these critical aspects, minimizing administrative burdens.
The Hidden Costs of Self-Administration
While managing an ICHRA yourself may seem like a cost-effective solution, hidden expenses can quickly arise, including risks like non-compliance fines, inefficiencies, and lost productivity. Here are some common challenges small businesses may face when self-administering an ICHRA:
Compliance Risks – Failure to follow federal guidelines can lead to excise taxes and more.
Time Drain – Reviewing claims manually and keeping up with changing employee statuses and notifications is labor-intensive.
Professional Fees – Hiring accountants or attorneys to draft plan documents or fix compliance errors can erode savings.
Diverted Focus – Spending time on healthcare administration pulls you away from other critical business initiatives.
Partnering with an expert like SBBMI reduces these risks and ensures your ICHRA runs smoothly without hidden surprises.
How SBBMI Simplifies ICHRA Administration
At Small Business Benefits of Michigan, we recognize that your time and energy are better spent growing your business, not navigating complicated benefits. That’s why we’ve developed a streamlined approach to ICHRA administration.
With SBBMI, You’ll Benefit From:
Compliance-Driven Plan Documents – Our experts guide you through creating legally valid documents tailored to your needs.
Automated Notifications – Meet deadlines effortlessly with customizable notification templates.
Simplified Reimbursement Processing – Integrated tools make claim verification and approvals a breeze.
Secure Record Storage – Stay compliant with transparent, easily accessible auditing and recordkeeping solutions.
Time-Saving Support – Free yourself from hours of administration by leveraging our tools, so you spend just minutes per month managing your ICHRA.
Explore our services and contact our ICHRA Administration team to see how we can help you manage your benefits with ease.
Final Thoughts
An ICHRA is a flexible and forward-thinking solution for small businesses aiming to provide meaningful healthcare benefits while controlling budgets. However, the complexities of proper administration require diligent planning, compliance clarity, and efficient processes to avoid pitfalls.
While self-administration may work for some businesses, the hidden challenges and risks often outweigh the immediate savings. By partnering with a trusted expert like Small Business Benefits of Michigan, you can simplify your ICHRA administration while maintaining peace of mind.
Next Steps
Are you ready to modernize your employee benefits strategy while staying compliant? Contact the team at SBBMI to learn how to implement ICHRA successfully and support your team with a health benefit that works for everyone.
Empower your employees while simplifying benefits management for your business. Contact Small Business Benefits at 616-425-9740 or visit sbbmi.com to see how we can customize a solution that works for your business needs. We’re here to help you thrive.
For additional resources, explore Healthcare.gov and the Small Business Benefits resource hub.