Now into its second year on the market, the Individual Coverage Health Reimbursement Arrangement (ICHRA) has been a breath of fresh air in the world of health insurance. The ICHRA allows employers to reimburse their employees for health insurance premiums and qualified medical expenses tax-free. It also allows employees to purchase a plan that works best for them, instead of businesses trying (and failing) to find a “one size fits all” plan. Let’s take a look at some of the changes we anticipate for ICHRA 2022.
Spotlight on ICHRA
In a recent article for BenefitsPRO, our cofounder and CEO, Jack Hooper shared, “Right now, 99 percent of people have not heard of ICHRA. But employers increasingly hate dealing with health insurance. We are putting more and more responsibility on the employer. They are saying, `I just want to give my employees $400 or $1,000 and make sure they are taken care of, but I don’t want to deal with this anymore.’"
What ICHRA really represents is a way for employers to take a step back. This is a fundamentally new model of how employers can provide benefits to employees.
“In this model, brokers help employers set a budget. It could be $200, $500 or $1,000 a month, and then employees are going to choose their own individual plan.”
Read more of Jack’s thoughts on ICHRA here!
How ICHRA works
At a high-level, the way ICHRA works is very simple:
- Employers design their plan, including defining which employees are eligible and establishing reimbursement limits
- Employees purchase the individual plans they want
- Employees submit claims for reimbursement
- Employers reimburse employees for valid claims
Changes: ICHRA 2022 affordability
Unlike its predecessor, the QSEHRA, the ICHRA does not have reimbursement, or contribution, limits. While there aren’t any contribution limits, there is the issue of how little you can actually contribute, which changes from year to year. The minimum amount is determined by the issue of ICHRA affordability and how the HRA interacts with premium tax credits. The affordability threshold is the highest percentage of household income an employee can be required to pay out of pocket for monthly health insurance premiums.
In order to determine ICHRA affordability we need to determine the lowest cost self-only silver plan on the marketplace.
An ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 9.83% of the employee’s household income for 2021. (This is a slight increase from the 9.78% allowed for 2020.)
Affordable HRA Contribution > Lowest Cost Silver Plan - (9.83% * Employee Household Income)
Insurance premiums are driven by location and age of insured. To allow employers to estimate the cost of plans for their employees, the IRS has allowed the following safe harbors to determine lowest cost silver plans for each employee.
- Location- employer can use primary work address instead of employee residence.
- Age based bands- age of employee on first day of plan year
- Prior year- employers can use prior years rates to determine affordability for the following year (ie 2021 rates can be used to calculate 2022).
If all of this sounds overly complicated, don’t worry! You can upload an employee census to our site and we can run a free affordability analysis for you.
What does ICHRA affordability mean?
As part of the Affordable Care Act (ACA), the employer mandate requires employers with 50+ full time equivalent (FTE) employees to provide health insurance to their employees.
The affordability threshold is the highest percentage of household income an employee can be required to pay out of pocket for monthly health insurance premiums.
What happens if ICHRA is not affordable to employees?
Once a year the employee has the option to opt-out of ICHRA. If the ICHRA offering is deemed unaffordable to the employee the employee has the option to still participate in the ICHRA or opt-out of the ICHRA and accept a premium tax credit (PTC) from the marketplace. This is another difference from the QSEHRA, which does not allow employees to opt-out.
Applicable Large Employers (ALE) may be liable for ACA penalties for not providing affordable coverage.
Helpful resource → A complete list of enrollment deadline extensions by state.
Take Command can help answer your ICHRA 2022 questions!
Chat with our team any time on our website and we would be happy to help walk you through any questions you may have. Other helpful resources we've made available to you:
A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.