We’ve worked hard and are very proud of our comprehensive ICHRA Guide, but maybe you’re just looking for the key points and trying to determine if this new health reimbursement arrangement is right for company or your client. If so, this ICHRA 101 post is just for you.
What is an ICHRA?
An ICHRA allows employers to reimburse their employees tax-free for individual insurance and medical expenses. Employees choose any plan they want from the individual marketplace to qualify for participation.
Any size business can utilize ICHRA. We envision the target businesses to be between 20 and 200 employees who have traditionally offered employer-sponsored plans.
Individual Coverage HRAs (ICHRAs) will be available January 2020. That means that starting in Q4 2019, you can start setting these up for your firm or client for the upcoming year.
At a high-level, ICHRA is a superior model compared to traditional employer-based plans. How it might be implemented for a particular client will depend on a lot of local market factors, but read on to find out why you or your client should consider an ICHRA over a group plan.
Is an ICHRA better than a group plan?
- Transfer of Risk
- Personalized Plan Choice
- Greater Tax Efficiency
- Simple and Flexible Design Options
- Budget Control
One of the biggest advantages and differentiators for ICHRA is the increased number of classes, which can be used to scale benefits across different types of employees based on legitimate job-based criteria.
ICHRA gives employers more freedom to design a plan that best suits their needs. More classes mean more flexibility and affordability for the employer, letting a company focus their health benefit dollars on the employees that matter most.
ICHRA 101: What are the "ICHRA employee classes?”
- Full-Time Employees
- Part-Time Employees
- Seasonal Employees
- Employees covered by a collective bargaining agreement
- Employees who have not satisfied a waiting period for coverage
- Salaried Employees
- Non-Salaried Employees
- Temporary employees of staffing firms
- Non-Resident aliens with no US-based income
- Employees in the same geographic rating area
- Any combination of two or more classes from above.
In addition, the new hire provision allows employers to phase out their group plan by grandfathering in old employees, and requiring employees hired after a specified date participate in ICHRA regardless of other class distinctions.
ICHRA 101: What are the ICHRA Requirements?
- Company cannot offer a traditional group plan and ICHRA to same class (does not preclude group dental and vision like QSEHRA)
- ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV)
- Business size doesn’t matter. It can be a 5-person startup, a 50-person team, or a 500-person corporation. ICHRA is a scalable benefit for all of these.
- The amount doesn’t matter. There are no contribution caps each year. That means the sky’s the limit for this tax-friendly benefit.
- Everyone does NOT have to be treated equally across the board. An employer can choose to treat different classes of employees differently based on the nine divisions of classes proposed in the new law.
- Maintain health coverage that meets PHS 2711 & 2713 requirements ($0 preventive and no annual or lifetime limits). In other words, they need to meet Minimum Essential Coverage through an individual marketplace plan.
One of the biggest points of confusion (and opportunity!) for this new HRA is the issue of affordability as it relates to premium tax credits and satisfying the employer mandate. The main takeaway is that ICHRA satisfies the mandate if it is affordable. If it’s not affordable, the employee can opt out and receive premium tax credits instead.