An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an excellent way for employers to reimburse employees for individual health insurance premiums and qualified medical expenses. However, one common challenge arises when some employees are covered under a spouse’s employer-sponsored health plan instead of purchasing their own individual insurance.
Can those employees still receive a meaningful healthcare benefit?
Yes. In many cases, employers can combine an ICHRA with a Spousal Health Reimbursement Arrangement (Spousal HRA) to provide benefits to both groups of employees.
This approach allows employers to reimburse employees with individual health insurance through the ICHRA while providing eligible employees covered under a spouse’s group health plan with reimbursement for out-of-pocket medical expenses through a Spousal HRA.
The Challenge With an ICHRA
An ICHRA is designed for employees who are enrolled in individual health insurance coverage (or Medicare, if applicable).
Employees generally cannot participate in an ICHRA if they are covered under:
- A spouse’s employer-sponsored group health plan
- Their own employer’s traditional group health plan
- Other group health coverage that does not satisfy the ICHRA eligibility requirements
For employers with a diverse workforce, this can create a gap.
Some employees purchase their own individual insurance and qualify for the ICHRA, while others receive excellent coverage through a spouse’s employer and therefore cannot participate.
Without another solution, those employees may receive no healthcare reimbursement benefit at all.
What Is a Spousal HRA?
A Spousal Health Reimbursement Arrangement is designed for employees who are enrolled in a spouse’s employer-sponsored group health plan.
Rather than reimbursing insurance premiums, a Spousal HRA typically reimburses eligible out-of-pocket medical expenses such as:
- Deductibles
- Coinsurance
- Copayments
- Prescription drug expenses
- Other qualified medical expenses allowed under the plan
This allows employers to provide healthcare assistance without reimbursing premiums that are paid through another employer’s group health plan.
How the Two Plans Work Together
By offering both arrangements, employers can provide benefits based on how employees receive their health coverage.
Employees With Individual Health Insurance
Employees who purchase their own individual health insurance may participate in the employer’s ICHRA.
Depending on the plan design, the ICHRA can reimburse:
- Individual health insurance premiums
- Medicare premiums (if applicable)
- Qualified medical expenses
Employees Covered Under a Spouse’s Group Health Plan
Employees enrolled in a spouse’s employer-sponsored group health plan generally are not eligible for the ICHRA.
Instead, they may participate in the Spousal HRA, which reimburses eligible out-of-pocket medical expenses incurred under the spouse’s plan.
This allows those employees to receive a valuable healthcare benefit even though they do not have individual health insurance.
Why Employers Use This Strategy
Employers often have a workforce with a variety of coverage situations.
For example:
- Some employees buy insurance through the Health Insurance Marketplace.
- Some are enrolled in individual policies purchased directly from an insurance company.
- Some are covered under a spouse’s employer-sponsored group health plan.
- Some may be enrolled in Medicare.
Using only an ICHRA may leave certain employees without access to employer-funded healthcare reimbursements.
Combining an ICHRA with a Spousal HRA allows employers to extend meaningful benefits to a broader group of employees while matching the reimbursement arrangement to each employee’s coverage.
Advantages of Combining an ICHRA and a Spousal HRA
Employers often choose this approach because it can:
- Provide healthcare benefits to more employees.
- Avoid leaving employees on a spouse’s health plan without employer assistance.
- Allow reimbursement strategies that align with each employee’s type of coverage.
- Create a more consistent employee benefits program.
- Support employee choice while maintaining a defined employer budget.
Is This Approach Right for Every Employer?
Not necessarily.
Employers should consider factors such as:
- The size of the workforce.
- How employees currently obtain health insurance.
- Whether the employer offers a traditional group health plan.
- Applicable HRA eligibility and compliance requirements.
- Overall benefits objectives.
A careful review of the employer’s workforce is an important first step before implementing any reimbursement strategy.
Example
Consider a small employer with 20 employees:
- Eight employees purchase their own individual health insurance.
- Seven employees are covered under a spouse’s employer-sponsored group health plan.
- Five employees have Medicare coverage.
If the employer offers only an ICHRA, the employees covered under a spouse’s group health plan generally would not be eligible to participate.
By combining an ICHRA with a Spousal HRA, the employer can:
- Reimburse individual insurance premiums for employees enrolled in individual coverage through the ICHRA.
- Reimburse eligible out-of-pocket medical expenses for employees covered under a spouse’s employer-sponsored plan through the Spousal HRA.
As a result, more employees receive meaningful healthcare assistance while the employer maintains a structured and predictable benefits program.
Compliance Considerations
Employers should carefully design any HRA strategy to comply with applicable federal requirements.
Factors such as employee eligibility, plan design, reimbursement rules, and coordination between different benefit arrangements should all be reviewed before implementation.
Working with an experienced HRA administrator can help ensure the plans are established and administered properly.
How Empower Helps Employers
Empower specializes in designing and administering flexible reimbursement arrangements for employers with diverse workforces.
We help employers implement:
- Individual Coverage HRAs (ICHRAs)
- Spousal HRAs
- Qualified Small Employer HRAs (QSEHRAs)
- Retiree HRAs
- Traditional HRAs
Our team can help you evaluate your workforce, explain your options, and administer a reimbursement program that fits your organization’s needs.
Questions About Combining an ICHRA and a Spousal HRA?
If your workforce includes employees with different types of health coverage, an ICHRA alone may not meet everyone’s needs.
A combined ICHRA and Spousal HRA strategy may allow you to provide valuable healthcare benefits to more employees while maintaining predictable costs.
Contact Empower to learn whether this approach is appropriate for your organization.
