How Employees Pay for Their Health Insurance Premiums

With StretchDollar ICHRA, employees own their individual health insurance plan. That means they're responsible for paying their insurance carrier directly each month. After they make their premium payment, they're reimbursed by their employer using their ICHRA tax-free allowance.

How It Works

1. The employee selects and enrolls in an individual health plan.
2. The employee pays the monthly premium directly to the insurance carrier 
3. The employees submits an auto-reimbursements request (we also have a process to access their initial funds before final payment
4. The employer reviews & approves the reimbursement request and the employee receives their tax-free dollars on the first of the month for the rest of the plan year

The result is that employees receive the value of their employer's contribution tax-free while maintaining ownership of their health insurance policy.

Why Doesn't StretchDollar Pay the Insurance Carrier Directly?

With StretchDollar, the employee owns the health insurance policy, so they pay the insurance carrier directly. Why? Because it:

• Gives employees control over their health coverage.
• Allows them to keep their plan when they leave their employer.
• Keeps premium payments simple and straightforward without adding another party to the payment process.
• Ensures reimbursements are handled in accordance with ICHRA regulations.

Are Reimbursements Tax-Free?

Yes. As long as the employee is enrolled in qualifying individual health insurance coverage, ICHRA reimbursements are:

• Tax-free to the employee
• Tax-deductible to the employer

Can Employees Deduct Their Premium Payments on Their Tax Return?

Generally, no.

Because employees are reimbursed through a tax-free ICHRA, they can’t also claim those same premium expenses as a medical deduction – only the portion that isn’t covered.

Also, medical expenses are only deductible if a taxpayer itemizes deductions and their unreimbursed medical expenses exceed 7.5% of their adjusted gross income (AGI). Most taxpayers don’t meet this threshold.

Of course, for personal tax advice, employees should consult their tax advisor.

Frequently Asked Question

If employees pay with after-tax dollars, why is the allowance still tax-free?

The premium payment and the reimbursement are two separate transactions.

The employee pays the insurance company using their own funds. They own it! Once proof of coverage is submitted via the portal, the employer reimburses the employee also through the portal. That reimbursement is made tax-free under IRS rules, giving employees the tax benefit while allowing them to own and control their individual health insurance policy.