How Does HSA work with ICHRA?

HSAs and ICHRAs can be used in tandem, but it is important to understand a key compatibility requirement.

The Core Rule

To contribute to an HSA, an employee must be enrolled in an HSA-eligible High Deductible Health Plan (HDHP). An ICHRA does not inherently affect HSA eligibility; rather, eligibility is determined by the individual health plan the employee selects.

How It Works

If an employee uses their ICHRA funds to purchase an HSA-eligible HDHP on the individual market, they are permitted to contribute to an HSA. The ICHRA reimburses premium costs, while the HSA can be used to cover qualified out-of-pocket medical expenses.

Important Distinction

Employees can only use ICHRA reimbursements for insurance premiums and not for direct contributions to their HSA. HSA contributions must be made by the employee or through a separate employer contribution arrangement.

Employer Considerations

Employers offering an ICHRA cannot concurrently offer a traditional group health plan to the same class of employees. However, they can choose to make separate contributions to employee HSAs if they wish.

Summary

The combination of an ICHRA with an HSA-eligible HDHP is a viable, tax-advantaged strategy. This allows employees to receive premium reimbursements through the ICHRA while also building savings in an HSA, provided their chosen individual plan qualifies as an HDHP.

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