If you’ve spent any time around the Take Command Health blog, you’ve probably come across some funky acronyms for weird insurance terms. Well let’s add another one to the list! The ICHRA (which stands for Individual Coverage Health Reimbursement Account) is the newest health savings tool. President Trump proposed the HRA option to the Departments of Labor, Treasury, and Health & Human Services as a way to add flexibility with the use of HRAs and increase opportunity for individuals to want to use them. The exact rules are still underway while they figure out the specifics, but with all the questions that we are already getting, we wanted to publish our top answers to help get the word out.
What are the requirements for an Individual Coverage HRA?
- ICHRA rules require individual employees as well as their dependents to be covered by an existing health insurance plan. The plan design does not discriminate as to prevent risk shifting. And lastly, employees in the same “employee class” are offered an HRA on fair and even terms. Essentially, an employer can not offer a more generous amount to employees based on health factors.
What are the proposed "employee classes" and how do they work?
The proposed employee classes in regulations include:
- 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
- Employees under age 25
- Non-Resident aliens with no US-based income
- Employees whose primary site of employment is in the same rating area
What type of employee can benefit from the ICHRA?
- In addition to the classes explained above, the employee must also have heath insurance to be eligible. The employee can be the primary carrier or a dependent on a family plan.
What can it help pay for?
- The ICHRA is created to assist employees in paying for their individual heath insurance premiums. These include medical expenses if allowed by the employer, provided the employee has proof of existing health insurance coverage. This is similar to the rules in effect governing QSEHRA.
Is there a minimum or maximum number of employees needed?
- No, there are no minimums or maximums. If a business has over 50 full time employees, they may have to meet a minimum contribution so that they can avoid ACA corporate mandate penalties.
What business are able to offer an Individual Coverage HRA?
- Any sized business is in compliance. There are a few guidelines though. First, the business must not offer a QSEHRA or excepted-benefit HRA to all employee classes. Secondly, the business can offer a group health plan but not to the same employee class it is offering an ICHRA.
What are the contribution limits?
- No limits have been provided as of yet. The Departments of the Treasury, Labor, Health and Human Services are still finalizing details of the plan and we’ll have more information as it’s released.
Can large employers offer an Individual Coverage HRA to meet the corporate mandate?
- Yes. We are still waiting on the specifics from the IRA regarding calculations and benchmarks. These should help large employers understand what their minimum HRA contributions would have to be so they can meet the mandates.
- Initial guidance and examples were provided in Notice 2018-88 as well as ideas on potential safe harbors for large employers (ALEs). These safe harbors are important to make Individual Coverage HRAs more practical and less administratively burdensome for large employers.
The initial safe harbors include:
- Employee location: Allowing ALEs to base HRA rates based on their primary business location instead of every employee's actual address.
- Calendar year and non-calendar years: Provisions for HRA plan years that are different from individual insurance plan year.
- Affordability: Allowing ALEs to estimate an employee's Household wages using one of three different methods: Form W-2 Wages, Rate of Pay, or Federal Poverty Line.
- Another safe harbor based on employee ages was also discussed but not yet provided. The IRS is asking for comments on how this might be practically implemented.
How much must an employer contribute to meet the Minimum Value (MV) requirements and avoid corporate mandate penalties?
- IRS Notice 2018-88 provides our first glimpse into how this might work. Employers will be able to utilize some of the safe harbors listed above or able to do their own calculations--providing they apply them consistently to different employee classes.
- In general, the HRA contributions made by an employer using an Individual Coverage HRA must be high enough that an employee could purchase the lowest cost silver plan in his or her market and not pay more than 9.86% of his or her income out-of-pocket.
- For example, Employer ABC is offering employees an Individual Coverage HRA. Employee A is 40 years old. The lowest silver cost plan for self-only coverage in Employee A's rating area is $7,000 a year. Using the safe harbors described above, Employer ABC estimates Employee A's household income to be $15,000 and offers $6,000 through the HRA.
- This is deemed "affordable" for MV sake and Employer ABC would be compliant because Employee A's effective contribution of $1,000 (The cost of the lowest silver plan $7,000 less the available HRA funds of $6,000) is less than 9.86% of Employee A's total income of $15,000 ($1,000/$15,000 = 6.67%).
Can Employees participate in the HRA and receive Premium Tax Credits (PTC)?
- No, but employees will have an option to opt out of the HRA for a year which will allow the employee to be eligible for tax credits. An employee is able to opt out of the ICHRA after looking at their allowance amount and finding that it was low enough so that any policy they purchased would be considered unaffordable and wouldn’t provide any value under ACA.
What’s the difference between QSEHRA and ICHRA?
- To keep it brief, the difference starts with a QSEHRA must be a small business with 50 or less employees, the individual coverage HRA works for any business type. Employees must have current health insurance coverage to be eligible for the ICHRA, while a QSEHRA using employee doesn’t have to have health care but will pay taxes on any medical reimbursements while they are uninsured come tax time. For a detailed breakdown comparing the two, be sure to check out our handy dandy blog post here!
Can an Individual Coverage HRA work with other types of HRAs?
- Unfortunately, no. The only option that is could work with is QSEHRA, but it appears that the benefits would be redundant. However, the proposed rules do allow employers to offer different benefit solutions to different classes of employees (assuming the classes are defined in a fair manner). An employer could offer an Excepted Benefits HRA to one class (say, part-time employees) and a QSEHRA to full-time employees.
When will we learn more about the final rules?
- We expect to hear within the next few months. We’ll keep you up to date as soon as they are released.
When can I set up an Individual Coverage HRA?
- The proposed rules recommend that these new HRAs become effective January 1st, 2020. That means starting in Q4 2019, you can start setting these up for your firm for 2020.
Be sure to check back soon as we’ll be updating our blog with the latest information as it is announced. We understand the final HRA won’t be offered until January 2020, but we think it’s essential to have things in order for your business! Drop us an email or give us a shout if you have any questions!