Today, we are talking all about health reimbursement arrangement IRS rules that allow employers to reimburse their employees for health insurance. At Take Command, we’ve been admittedly giddy about the ICHRA even before it burst onto the scene in January 2020. This version of health reimbursement arrangement represents a “super-charged” version of the QSEHRA (qualified small employer HRA), with higher contribution limits and greater design flexibility. Let us anticipate some confusion you may have.
The IRS has released rules and regulations surrounding the design and administration of HRAs which ensure that they're being administered fairly without discrimination. Here are a few of the IRS HRA rule highlights.
Health Reimbursement Arrangement IRS Rules
ICHRA classes
- The 11 ICHRA classes provide an added layer of flexibility. Now employers can scale benefit contributions differently based on hourly vs. salaried or even temporary employees from staffing agencies. Employers can utilize multiple plan types, but can only offer one plan to each employee class: For example, an employer could offer a traditional group plan to full-time employees and an ICHRA or QSEHRA to part-time employees but they can’t offer both to a single class.
- There will be a minimum class size for some categories: We understand the regulators' desire to limit adverse selection, but wish these had remained a little more flexible. In general, employers with fewer than 100 employees must have at least 10 employees in a "class". For employers between 100-200, classes must make up at least 10% of the total number of employees. Employers with over 200 employees must have at least 20 employees in a given class.
Special Enrollment Period
- Employees that are newly eligible for a QSEHRA or ICHRA will be eligible for a Special Enrollment Period (SEP) and able to enroll in an individual plan on the marketplace: This is a great fix to the previous QSEHRA rules which required employees to wait until the next Open Enrollment Period (OEP).
Traditional Group Plans
- “Traditional Group Plan” has been redefined to not include plans made up solely of “excepted benefits”: This fixes an issue with QSEHRA where employers offering a group dental or vision plan were disqualified from QSEHRA. With this fix, employers can offer ICHRA and a group dental plan without issue.
Qualified Health Plans
For employees to participate in ICHRA and receive reimbursements, they must be covered by a qualified individual health plan. For a plan to be considered “qualified,” it must meet two primary requirements:
- Have no annual or lifetime limits (PHS 2711)
- Cover preventive health services with no cost sharing (PHS 2713)
While employees will have many options on the individual market, unfortunately the rules do not allow for employees to consider getting on their spouse’s group plan (if offered by the spouse’s employer). This is a big bummer, especially since QSEHRA works great with employees on their spouse’s group plan.
Non-eligible plans
- Healthcare Sharing Ministries (HCSM) will not be eligible for ICHRA: This is a bummer. Again, we understand the concerns of the regulators, but healthcare sharing members are already operating outside of the risk pool.
ERISA
- QSEHRA and ICHRA will not be subject to ERISA as long as certain safe harbors are met: This is important to keep these plans simple and free of more burdensome regulations.
Want to read the health reimbursement IRS rules for yourself?
- IRS announcements on Health Reimbursement Arrangements
- IRS FAQs on health reimbursement arrangements
- IRS ACA Tax Provisions for Employers
Still confused about HRA IRS rules?
We've got a slew of resources on our HRA blog and comprehensive guides to HRAs, ICHRA and QSEHRA.
→ Learn about Health Reimbursement Arrangement Rules for ICHRA and QSEHRA.
Our team is here to help. We keep up with the changes so you don’t have to.
