Many employers struggle with basic questions: Does Medicare count as qualifying coverage? Which premiums can actually be reimbursed? What happens if an employee only has Part A and not Part B? Get these answers wrong, and you risk compliance headaches or leaving employees with coverage gaps.
This guide breaks down how ICHRA and Medicare work together, what's reimbursable, and where the compliance tripwires sit, with guidance from Muneris Benefits' licensed agents who work with employers across Virginia and West Virginia every day.
Key Takeaways
- ICHRA can reimburse Medicare Part A, B, C, D, and Medigap premiums
- Employees need Parts A & B together, or Part C, to satisfy ICHRA's coverage requirement
- Medicare eligibility alone cannot be its own ICHRA employee class
- Employers with 20+ employees must follow Medicare Secondary Payer (MSP) rules
- Get licensed guidance before coverage transitions to avoid MSP and enrollment penalties
What Is ICHRA and How Does It Work?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded, tax-free allowance. Employees use it to pay for individual health insurance premiums and, in many designs, out-of-pocket medical expenses.
Unlike a Qualified Small Employer HRA (QSEHRA), ICHRA has no cap on employer contributions. Employers set their own funding levels based on budget and workforce needs.
There's one hard requirement: employees must carry individual health coverage, not coverage through a spouse's group plan, to participate. Medicare counts too, provided it meets the right combination (more on that below).
Employers don't have to offer ICHRA company-wide. They can structure it by employee class, including:
- Full-time vs. part-time
- Salaried vs. hourly
- Seasonal workers
- Geographic location (different rating areas)
- Employees in a waiting period
These classes determine who gets ICHRA versus traditional group coverage, and they matter a lot once Medicare enters the equation.
Understanding Medicare's Four Parts
Before tackling ICHRA integration, it helps to know what each part of Medicare actually covers.
The Four Parts, Explained
- Part A (Hospital Insurance): Covers inpatient hospital care, skilled nursing facility stays, and hospice care.
- Part B (Medical Insurance): Covers doctor visits, outpatient care, and preventive services. The standard Part B premium is $202.90 per month in 2026, according to CMS's 2026 premium fact sheet.
- Part C (Medicare Advantage): A private-insurer alternative that bundles Parts A and B, often with Part D included.
- Part D (Prescription Drug Coverage): Helps pay for prescriptions, but standing alone, it doesn't meet minimum essential coverage requirements.
What Actually Satisfies the ICHRA Requirement
Here's where employers often go wrong: Part D by itself isn't enough. To satisfy ICHRA's individual coverage requirement, an employee needs Parts A and B together, or Part C (Medicare Advantage).
Can ICHRA Reimburse Medicare Premiums? What's Covered
Yes. Under the 2019 federal rule governing HRAs, ICHRA can reimburse premiums for Medicare Parts A, B, C, and D, plus Medigap policies.
Reimbursable expenses typically include:
- Part A premiums (when applicable)
- Part B premiums
- Medicare Advantage (Part C) premiums
- Part D premiums
- Medigap supplemental premiums
- Other qualified medical expenses, depending on plan design
The Design Restriction Employers Miss
An ICHRA cannot be structured to reimburse only expenses Medicare doesn't cover, or otherwise vary by Medicare's coverage gaps. The same terms and dollar amount must apply to everyone within a class, regardless of Medicare eligibility.
Anti-duplication rules still apply. Federal law generally bars selling individual coverage that duplicates Medicare benefits, and the 2019 rule confirmed HRAs get no special exception—Medicare and Medigap premiums themselves remain reimbursable.
MSP Rules for Larger Employers
If your business has 20 or more employees, Medicare Secondary Payer (MSP) rules apply. Your group plan generally pays first for Medicare-eligible employees age 65+, with Medicare as secondary. Employers can't offer financial incentives to push employees to drop primary group coverage in favor of Medicare.
Designing this correctly takes more than a quick read of the regulation. Muneris Benefits' licensed agents help Virginia and West Virginia employers build ICHRA plans that account for these rules. They also guide Medicare-eligible employees through setting up premium reimbursements properly.
Transitioning from Group Coverage to ICHRA: What Employees Need to Know
Most confusion shows up here: employees on an employer's group plan often enroll only in Part A, since it's usually premium-free and doesn't require action. Part B gets skipped because it wasn't needed while group coverage was primary.
Once ICHRA replaces the group plan, that's a problem. ICHRA requires Parts A and B together, or Part C. Part A alone doesn't qualify.
The Special Enrollment Period (SEP)
A Special Enrollment Period allows penalty-free Part B enrollment after losing group coverage tied to current employment. Employees can enroll:
- While still covered under the group plan, or
- During the 8-month window after employment or group coverage ends, whichever comes first
Missing this window can mean late-enrollment penalties and coverage gaps, so timing matters.
Documentation Employers Should Request
Before setting up reimbursements, employees need to show proof of Part A and B (or Part C) enrollment. Acceptable proof typically includes:
- A Medicare card
- An insurance statement
- A signed attestation
Employers should communicate SEP timing early, ideally as soon as an ICHRA transition is announced, so no one is left with a coverage gap.
The same ICHRA can still cover family members who aren't Medicare-eligible through individual Marketplace plans.
Employer Compliance Considerations
A few compliance rules deserve extra attention when Medicare-eligible employees are part of your workforce.
Medicare eligibility can't be its own class. You can't create an ICHRA class labeled "Medicare-eligible employees" and give them different terms. Classes must be based on permissible categories, such as full-time status or job type, not Medicare status.
Ongoing verification matters. Employers should confirm reimbursement claims with periodic proof of enrollment or documentation such as an Explanation of Benefits with each claim.
Part D creditable coverage notices still apply. If you offer prescription drug coverage to Medicare-eligible employees, you must notify them annually before October 15 whether that coverage is creditable. CMS updated its creditable coverage guidance for 2026 in July 2025. Review current requirements before your next notice cycle.
How Muneris Benefits Helps Employers and Medicare-Eligible Employees
Muneris Benefits has operated as an independent Virginia brokerage since 1990, with offices in Roanoke and Narrows serving employers across Virginia and West Virginia.
Support covers both sides of an ICHRA rollout:
- Employers: Design ICHRA employee classes and reimbursement structures that hold up under compliance review, including Medicare-based classes and MSP rules
- Medicare-eligible employees: Compare Medicare Supplement, Medicare Advantage, and Marketplace options so staff can transition without coverage gaps
If your business is rolling out ICHRA and has Medicare-eligible employees on staff, get guidance before the transition. Reach out to the Muneris Benefits team to walk through your setup.
Frequently Asked Questions
What is the key difference between an ICHRA and an HSA?
An ICHRA is an employer-funded reimbursement arrangement, while an HSA is an employee-owned savings account paired with a high-deductible health plan. Medicare enrollees generally cannot contribute to an HSA once enrolled.
Can I get reimbursed for my Medicare premiums?
Yes. ICHRA can reimburse Medicare Part A, B, C, D, and Medigap premiums, as long as your employer's plan design allows it. Check with your HR team or plan administrator for specifics.
What is the income limit to avoid higher Medicare premiums?
IRMAA income thresholds change annually and are based on your income from two years prior. Check current CMS figures or consult a licensed agent for your specific situation.
Do U.S. citizens get free Medicare?
Part A is often premium-free if you have at least 40 quarters of Medicare-covered employment. Parts B, C, and D typically carry monthly premiums regardless of citizenship.
What are two things not covered by Medicare?
Original Medicare doesn't cover routine dental and vision care, or long-term custodial care for daily living assistance. Medigap or Medicare Advantage plans may fill some of these gaps.
Do I have to pay Medicare Part B if I live abroad?
Original Medicare generally doesn't cover care outside the U.S., so many expats delay Part B enrollment. Delaying has tradeoffs—late enrollment can trigger permanent Part B premium penalties—so confirm timing with a licensed adviser first.
