Health reimbursement accounts (HRAs) have been around for a long time, but they’ve gained traction recently as the result of a bipartisan effort spanning two presidencies and the most recent regulatory rules announced this summer. Two new HRAs have joined the part as of January 1st, 2020: the ICHRA (individual coverage HRA) and the EBHRA (excepted benefit HRA). We will be touching on the first one in this post.
HRAs have been part of a largely bipartisan effort to alleviate healthcare costs and return healthy individuals to the market. The easiest way to think about an HRA is that an employee chooses their own health plan that works best for them. Then, their employer reimburses for premiums and qualified medical expenses.
The result? A 401-k style benefits model that offers increased flexibility and allows for more personalized plan choice for the employee, less risk management for the employer, and greater tax efficiency for all.
The individual coverage HRA hit shelves January 2020, prompting a revolution in employer-sponsored group benefits.
Let's jump to the main points and benefits of the ICHRA for 2020.
ICHRA 2020 benefits
The new HRA brings a greater degree of flexibility and accessibility to this tax-advantaged benefit. While it will take a bit of time to fully realize all the benefits that this tool brings, here are a few advantages we expect to see right off the bat.
- Flexibility: 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 11 ICHRA classes proposed in the new law.
- Personalization: ICHRA is much more personalized and allows employees to choose their own plan, as opposed to an employer-sponsored health plan.
- Budget control: Unlike group plans and their creeping prices year over year, employers can choose a budget that works for them and stick with it. Not only that, employers have the option to rollover unused funds or reset to zero the following year. (Unused funds stay with the employer!)
- Employer mandate: 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)
- Enrollment ease: Employers can choose to offer an ICHRA any time throughout the year and setting up an ICHRA is incredibly simple. When an employer offers an ICHRA, the employee has 60 days to sign up for a marketplace plan as part of a special enrollment period, instead of having to wait until the annual open enrollment period.
2020 contribution limits for ICHRA
Good news, folks. Employers can contribute any amount, with no monthly maximums or minimums or annual contribution limits. That means that they can choose a monthly reimbursement rate that works for them and take advantage of this tax-friendly savings option to its fullest extent.
- Company size: Company size does not matter, whether you are a 5-person startup, a 50-person team, or a 500-person corporation. ICHRA is a scalable benefit for everyone.
- Reimbursement options: Both premiums and medical expenses can be reimbursed. Plans can be designed to include premiums only or premiums plus expenses.
- Group plan interaction: An ICHRA can be offered with a traditional group plan as long as both options aren't being offered to the same class of employees. Note: this does not preclude group dental and vision.
- Owner eligibility: Depending on the legal setup of the company, employers may be eligible to participate in ICHRA. For example, C-corp and non-profit owners can participate, while S-corp owners are not ICHRA eligible (but can deduct expenses directly). It’s recommend that business owners talk to an accountant before setting up an HRA.
Wondering what types of plans can be integrated with the individual coverage HRA? Here's what to know:
- ICHRA can be integrated with major medical plans, Medicare and Medi-gap but not short-term plans, TRICARE, sharing ministries like Medi-Share, or employees covered by a spouse's plan. We've put together a handy guide for shopping for ICHRA-compliant plans to see what the best options are.
Want to learn more?
Take Command Health is a recognized leader in QSEHRA administration and small business HRA tax strategy. We were at the forefront of the new ICHRA administration regulations and responded with our own comprehensive and exclusive research to the proposed regulations. In addition, we were the only HRA provider invited to Washington when the new regulations were passed. Our team is passionate about HRAs and the impact they can have on small business.
Is your company or client going to be a part of this exciting change? Chat with our team with any questions you may have about these new, tax-friendly benefits or check out our new ICHRA Guide for more information on its background, setup process, requirements, and rules. Our ICHRA FAQ page is also kept up to date as more questions come in.