The Individual Coverage HRA has several customization options for business owners when designing their health benefit plan. The new hire provision adds another layer of flexibility for employers to reimburse employees tax-free for health insurance.
What is the new hire provision?
The new hire provision allows employers to offer new employees an ICHRA while continuing group coverage for existing employees in the same employee class.
We see this as a critical provision for employers who are interested in transitioning their workforce from a traditional group plan to an HRA model. Under the new hire provision, employers set a date in their plan documents that would make employees hired after that date eligible for ICHRA. The date can be set to any date on or after January 1, 2020. A different new hire date can be set for each separate class of employees an employer has established.
Employees hired before the set date would still be eligible to participate in the employer sponsored group health plan. As the workforce changes, the group plan would gradually be phased out.
The new hire provision allows employers to slowly transition to ICHRA from a traditional group plan.
Restrictions for the individual coverage HRA
In order for the ICHRA plan to be compliant with all the regulations a few key things need to be kept in mind:
- ICHRA must still be offered on“same terms” to all new hires
- New Hires cannot have a choice between the group plan or ICHRA
- Employer can discontinue the special rule at anytime. When this happens anyone in the new hire subclass will be absorbed back into the regular class of employees
- Cannot be used to offer different ICHRA amounts based on hire date
- Class size minimums do not apply unless the new hire subclass is subsequently subdivided and the minimum requirement would otherwise apply
Let's work it out!
Julie has 60 employees at her plumbing company. Julie's employees are scared of purchasing health insurance on their own. Even though they give Julie grief each year about the plan she chooses because of the changing provider networks, and rising costs her employees are adament they want to keep the group plan. Julie has been researching and sees the many benefits ICHRA can bring to her employees. She wants to slowly phase out the group plan as her team grows.
Remember, it is against ICHRA rules to allow the same class of employees a group plan and an ICHRA. By adopting the new hire provision, Julie is able to transition over to ICHRA and keep her old employees on the group plan. Julie sets up her ICHRA classes the following way and will vary the rates between the two classes:
1. Full-time Employees- New employees hired on or after July 1, 2020 are eligible for ICHRA. Employees hired before that date are eligible for the group plan Julie has been offering the last few years.
2. Part-time Employees- All are eligible for ICHRA. Julie is currently not offering a benefit to these employees. By allowing them to participate in ICHRA, employees are getting a new health benefit.
By adopting the new hire provision, Julie is able to maintain a happy workforce. She can do an ICHRA trial run on the new employees and use their shared experiences to build momentum around the new benefit. Julie learns firsthand from her new employees that they have selected several different types of carriers to meet their varied needs. The new employees are happy with the choices available to them.
Still need help?
Our team of design consultants are waiting to help you. Individual Coverage HRAs are a simple benefit that can be designed to maximize your health budget (not to mention ICHRA setup is so easy!). Read our ICHRA Guide or chat with our team with any questions you may have about these new, tax-friendly benefits. We would be happy to help.