Which statement correctly describes an Individual Coverage HRA (ICHRA)?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An Individual Coverage HRA (ICHRA) is a type of health reimbursement arrangement in which the employer contributes money and reimburses employees, on a tax-free basis, for qualified medical expenses including premiums for individual health insurance policies the employees buy on their own. To participate, an employee must be enrolled in individual coverage that counts as minimum essential coverage. The employer controls the arrangement and sets the allowance, and unused funds generally do not carry over to the next year. ICHRAs are an alternative for employers that do not want to offer a traditional group plan.
Why the other options are wrong
- B) The employee must buy individual coverage in the individual market; enrollment in the employer's group plan disqualifies the employee from an ICHRA.
- C) ICHRAs are funded entirely by the employer; employee pre-tax salary deferrals describe a cafeteria plan or FSA, not an ICHRA.
- D) ICHRAs serve employees of all ages; eligibility is tied to individual market enrollment, not to Medicare enrollment.
Memory hook
ICHRA: the employer pays the bill for the individual policy the worker buys on the open market.