Do employees pay their premiums with after-tax dollars?
Yes. Employees pay their monthly premium directly to their insurance carrier using their own funds, which are generally after-tax dollars.
However, they are then reimbursed by their employer through an ICHRA allowance, and that reimbursement is tax-free.
Think of it as a two-step process:
- Employee pays the insurance carrier.
- Employer reimburses the employee tax-free through the ICHRA.
This approach gives employees ownership of their health insurance policy while still allowing employers to provide tax-advantaged health benefits.
Why doesn't the employer pay the insurance company directly?
Because the employee owns the policy—not the employer.
This means the employee can keep their health insurance if they leave their job, avoiding the disruption of losing employer-sponsored coverage. It also allows employees to choose the plan that best fits their needs rather than being limited to a single group plan.