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ICHRA, Health Insurance Alternative for All Businesses, Rolling Out in 2020

You may be familiar with health reimbursement arrangements (HRAs), but how much do you know about the ICHRA coming in January 2020? For many small business employers, this new Individual Coverage HRA is a game-changer.

So, what is the ICHRA and why should you keep it on your radar? Read on to find out.

What is the ICHRA?

The Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers reimburse employees for the cost of their health insurance coverage. An ICHRA is not considered a traditional group health insurance plan. Instead, employees can select their own health insurance plan either on or off the Health Insurance Marketplace.

The Departments of Labor, Health and Human Services, and the Treasury (aka, “The Departments”) released rules and regulations for the Individual Coverage HRA.

ICHRAs are employer-sponsored arrangements, meaning employees do not contribute. Despite employers covering the bill, there are a number of employer benefits that come with offering an ICHRA.

Employers who choose to offer an Individual Coverage HRA don’t have to deal with selecting or managing health insurance plans. And, employees have the flexibility to choose a health plan that fits their needs, which could help with hiring and retention.

Individual Coverage Health Reimbursement Arrangement Q&A

The Departments estimate that 800,000 employers will decide to offer ICHRAs to their employees.

If you are interested in learning the ins and outs of Individual Coverage HRAs, check out some common questions and answers below.

What do ICHRAs do?

Again, an Individual Coverage HRA reimburses employees who purchase their own health insurance plans for the cost of the premiums.

Reimbursements can go towards an employee’s individual plan or a plan that covers themselves and their family.

Under an ICHRA plan, employers can pay a portion or all of an employee’s health insurance premium without requiring them to get a certain kind.

What do ICHRAs not do?

There are some limitations to what the new Individual Coverage HRA can do. Funds must be used to help cover an employee’s health insurance premium, not to:

  • Finance other medical care costs (e.g., copays, deductibles)
  • Cover short-term, limited-duration insurance (STLDI)
  • Cover dental- or vision-specific coverage

Again, an ICHRA cannot cover the above types of costs. However, there’s another new type of HRA that is equipped to handle these expenses: the Excepted Benefit HRA.

Excepted Benefit HRA funds can cover expenses like copays and other non-covered expenses.  Excepted Benefit HRAs cannot be used to cover an employee’s premium expenses. You can only offer an Excepted Benefit HRA in conjunction with a traditional group health plan.

Who can offer an Individual Coverage HRA?

All businesses, regardless of size, can choose to offer an Individual Coverage Health Reimbursement Arrangement.

However, there are some requirements businesses must meet to provide ICHRAs to their employees.

You cannot offer an employee both an ICHRA and a group health insurance plan. Employees do not get a choice between them. If you want to offer employees both a traditional group health insurance plan and an HRA that reimburses non-covered expenses, opt for the Excepted Benefits HRA.

Although you can’t offer the same employee both a traditional group health plan and an ICHRA, you can split up your employees. You can group employees into classes (e.g., part-time vs. full-time employees) and offer one group a traditional insurance plan and the other an ICHRA. Take a look at the next section to learn more about how classes work.

Which employees are eligible for ICHRAs?

As an employer, you can decide which employee classes (groups) are eligible for ICHRAs. But if you offer it to an employee in that group, you must offer it to all employees in that group.

But before you start grouping employees into random classes, keep in mind that you have to follow some guidelines. You can create classes based on these statuses:

  • Full-time employees
  • Part-time employees
  • Seasonal employees
  • Temporary employees
  • Employees grouped by location
  • Employees protected by a collective bargaining agreement
  • Salaried workers
  • Hourly workers
  • Employees who have not gone through a specified waiting period

There are also size requirements employers must meet before grouping employees into a class. You must have at least the following number of employees per category:

  • 10 employees (employers with fewer than 100 employees)
  • 10% of your total employees (employers with 100-200 employees)
  • 20 employees (employers with more than 200 employees)

Again, you can decide to offer a traditional group plan to employees in one category and an ICHRA to employees in another. For example, you could offer a group plan to full-time employees and an ICHRA to part-time employees.

How much are contributions?

Employers can choose how much to cover for an ICHRA.

There is no minimum or maximum contribution limit that employers must follow (unless you’re an applicable large employer; explained later).

Your contribution amounts do not have to be equal for all employees. You can give greater reimbursement amounts to employees who are older or have more dependents. However, be sure to keep things consistent.

What does the process for setting up an ICHRA look like?

If you’re set on offering your employees an Individual Coverage Health Reimbursement Arrangement, you might be curious about how the process works.

Here’s what happens after you decide to offer employees an Individual Coverage HRA:

  • You must give a notice to employees about the plan and how it works with the premium tax credit
  • Employees must enroll in the ICHRA during open enrollment
  • Employees go out and purchase healthcare
  • You receive reimbursement requests from employees
  • You reimburse employees (if you approve their request)

How do taxes work with the reimbursements?

ICHRAs don’t stray from the rules of other HRAs when it comes to taxation. For example, like a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), an ICHRA is tax-free.

This means that employers will not withhold federal income and payroll taxes from reimbursements before giving payments to employees.

Do you have to provide an ICHRA to your employees?

Now that you know it’s coming in 2020, you might be wondering if ICHRA has to come to your business…

Although businesses of all sizes can opt to offer it, nobody is required to. So no, you do not have to offer an Individual Coverage HRA to your employees.

However, the Affordable Care Act requires that some businesses offer either an ICHRA or a traditional group health insurance plan.

Deciding to provide a health insurance or health insurance reimbursement plan is optional for employers with fewer than 50 full-time equivalent employees.

Businesses with 50 or more full-time equivalent employees (known as applicable large employers) must offer health insurance coverage to their employees. Before the introduction of ICHRA, these businesses were required to offer a traditional group health insurance plan. But now, they can choose to offer the ICHRA instead.

Here’s one important caveat for businesses with 50 or more employees: You must make sure that the employee’s health insurance coverage is affordable. To do this, contribute a “sufficient amount” to ICHRAs, which the IRS will define.

Individual Coverage HRA fast facts

Learning about a new health insurance option can be overwhelming. Here’s an overview of key important information to take away about the new ICHRA plans:

  • Employers of any size can offer ICHRAs to their employees in place of group-term coverage if it makes health insurance affordable for employees
  • ICHRAs reimburse employees who select their own health insurance coverage
  • Individual HRAs are tax-exempt
  • Employers can decide how much to contribute but must offer the same rate to all employees within a class
  • Employers cannot offer ICHRAs to employees if they offer them traditional group health plans, but they can offer Excepted Benefit HRAs to them

ICHRA Fast-facts visual

For more information on the new Individual Coverage Health Reimbursement Arrangement, check out the IRS’s FAQ sheet.

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This is not intended as legal advice; for more information, please click here.

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