When an employee experiences a COBRA-qualifying event (such as termination or a reduction in hours), they have the option to continue their ICHRA benefit under COBRA. However, itʼs important to understand how this works and what it means for both the employee and the employer.
How COBRA works with ICHRA
While ICHRAs are eligible for COBRA continuation coverage, one of the core benefits of ICHRA is that employees can maintain their coverage regardless of their employer. As a result, thereʼs generally no benefit to accepting COBRA coverage with an ICHRA. In fact, itʼs more affordable for employees to decline COBRA and simply continue paying for coverage themselves.
With that said, employees can opt into COBRA continuation coverage for their ICHRA allowance—not for the plan itself. This is different from traditional COBRA, where employees continue their group health plan coverage after leaving their job by paying the full premium, including both employee and employer portions.
With ICHRA, however, the employer does not own or control the actual health plan.
Instead, the employer provides a monthly allowance that employees can use to purchase their own individual health insurance.
If an employee experiences a COBRA-qualifying event, they have three options:
1. Choose COBRA and continue receiving the ICHRA allowance from the employer
Employees can opt to continue receiving the monthly ICHRA allowance from their
employer through COBRA, but they must repay the full allowance amount plus a 2%
administrative fee, totaling up to 102% of the allowance.
Example:
If your ICHRA allowance is $400 per month, you would need to repay your employer
approximately $408 per month (the $400 allowance plus a 2% administrative fee) to
continue receiving the allowance under COBRA.
2. Choose to continue coverage and pay the insurance carrier directly
More commonly, employees choose to continue coverage directly with the insurance
carrier. In this scenario, the employee could continue their current coverage by simply paying the full premium directly to the carrier, without the need to send payment to the employer and wait to get reimbursed. This option allows employees to continue with their current deductible and max-out-of-pocket.
This option is not part of COBRA. The employee pays for their coverage directly, using their own bank, debit, or credit card, rather than using their Zorro Pay card.
This option is often more cost-effective than continuing through COBRA, as the employee is not required to pay the 2% administrative fee associated with COBRA continuation.
3. Enroll in a new marketplace plan and apply for a Premium Tax Credit
For some employees, termination may make them eligible for cost-share reductions and Premium Tax Credits. They can choose to discontinue their current plan through Zorro and apply for a new plan via their local marketplace and check their subsidy eligibility. This means their deductible and max-out-of-pocket would reset.