Can an ICHRA Reimburse Medicare Premiums?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-sponsored health benefit that allows businesses to provide tax-free funds for employees to use on individual health insurance premiums and qualified medical expenses. A common question is whether an ICHRA can reimburse Medicare premiums. This arrangement can indeed provide financial flexibility for Medicare-eligible employees, offering a structured way for employers to support their healthcare costs. This article clarifies how ICHRAs can be utilized for Medicare premium reimbursement.

Eligibility for ICHRA Medicare Premium Reimbursement

An individual must meet specific conditions for their Medicare premiums to be eligible for reimbursement through an ICHRA. The employer must formally establish the ICHRA to permit such reimbursements, defining the terms and conditions within the plan.

A fundamental requirement for an employee to receive Medicare premium reimbursement via an ICHRA is that they cannot be concurrently enrolled in their employer’s group health plan. The ICHRA is designed to integrate with individual health coverage, and Medicare is considered qualifying individual coverage for this purpose.

For an employee or their eligible dependent to qualify, they must be enrolled in Medicare Part A and Part B, or a Medicare Advantage plan (Part C) that includes Part B coverage. Simply having Medicare Part B alone does not meet the minimum essential coverage criteria required for ICHRA participation.

Employers offering an ICHRA to their workforce can include Medicare-eligible employees, provided these employees meet the specified enrollment criteria. The ICHRA framework treats Medicare as sufficient individual coverage, allowing employers to contribute funds for their employees’ Medicare-related premiums.

Reimbursable Medicare Premium Types

An ICHRA can reimburse a range of Medicare premium types, offering considerable financial relief to eligible individuals. Premiums for Medicare Part B (Medical Insurance) are typically eligible for reimbursement, covering doctor visits, outpatient care, and preventive services. Medicare Part D premiums, which cover prescription drug plans, are also generally reimbursable through an ICHRA.

Medicare Advantage (Part C) plan premiums are another common type of reimbursable expense, provided the plan includes Part B coverage. These plans are offered by private companies approved by Medicare and combine Part A, Part B, and often Part D benefits. Additionally, premiums for Medicare Supplement insurance, also known as Medigap policies, can be reimbursed by an ICHRA.

Medicare Part A premiums are generally not a common reimbursement item because most beneficiaries do not pay a premium for Part A, having earned premium-free coverage through Medicare payroll taxes. However, if an individual is required to pay a premium for Medicare Part A, such as those who haven’t paid Medicare taxes for enough years, those premiums can also be eligible for reimbursement.

The Reimbursement Mechanism

The process for an individual to receive reimbursement for Medicare premiums through an ICHRA typically involves submitting claims to their employer or a third-party administrator (TPA). Employees generally access an online portal or use specific forms provided by the administrator to initiate a claim.

Required documentation for reimbursement typically includes proof of Medicare enrollment and evidence of premium payment. This might involve submitting copies of Medicare premium bills, Explanation of Benefits (EOB) statements from Medicare, or bank statements that clearly show the premium deductions. The administrator verifies these documents to ensure the expense is qualified under the ICHRA plan.

Once a claim is submitted with the necessary documentation, the employer or TPA processes it, verifying its eligibility against the specific terms of the ICHRA plan. Upon approval, the reimbursement is issued to the employee. These reimbursements are typically tax-free for the employee, provided all conditions under Internal Revenue Service (IRS) guidelines are met, offering a significant financial advantage.