Can I Offer a Health Insurance Stipend?
Offering Employees a Health Insurance Stipend IS POSSIBLE Using an ICHRA
We are often asked by business owners and CFO’s if they can offer their employees a stipend to purchase their own independent health insurance instead of providing a traditional group health plan. Traditional health insurance requires a lot of paper, administrative responsibilities, and trying to make employees happy by choosing the best of sometimes not-so-great choices. The answer is yes, you can offer an individual coverage stipend in the form of an Individual Coverage Health Reimbursement Arrangement (ICHRA).
A business health insurance ICHRA allows you to reimburse employees tax-free for their independently purchased health insurance premiums. As the employer, you set how much money you want to reimburse for monthly insurance premiums. This is the defined company contribution amount.
This gives your employees the freedom to shop for the best individual health plan that fits their personal needs and budgets on the Affordable Care Act compliant individual health insurance marketplace while you fund part of the cost through an individual coverage HRA.
There are several scenarios where a business reimbursement or stipend model makes more sense than offering a one-size-fits-all group health plan:
You are facing double-digit rate increases yearly on your small business group health plan. An ICHRA stipend shifts part of the rapidly rising cost to employees' individual health plan choices.
You have remote employees or a distributed workforce scattered across the country. An individual coverage HRA allows your distributed team to access localized care instead of being limited to in-network providers.
You employ part-time or seasonal employees. An ICHRA allows you to offer a standardized stipend to all W2 employees no matter how many hours they work.
You have a small team with diverse individual health insurance needs. An ICHRA allows each employee the flexibility to pick an independent plan that works for their personal situation.
On the technical side, an ICHRA must be legally integrated with ACA-compliant individual health insurance coverage and various non-discrimination tests apply to ensure compliance. This is where working with an experienced employee benefits broker is invaluable. Setting it up wrong can risk the tax-free status of your stipend. A knowledgeable group health insurance broker will ensure your ICHRA program meets all legal requirements so you can focus on operating your business. None of the administrative burden is on you… not any more.
As one of the first New Jersey group insurance broker firms to embrace these new insurance vehicles, we cannot stress enough the importance of having an expert guide you through the process. A qualified benefits broker will recommend the optimal stipend amounts to help you balance your budget while still attracting and retaining talent. They will also stay on top of any regulatory changes from the IRS or Department of Labor and alert you if modifications need to be made to keep your program in compliance.
In today’s complex and continually evolving benefits landscape, it is important to have a knowledgeable broker on your side. It is free to talk with us if you have any individual health reimbursement arrangement questions!
