The tax-advantaged benefits of the Individual Coverage HRA (ICHRA) won't be available until January 2020, but that doesn't mean we should skirt over learning about the rules. Our team sees this new HRA option as a game changer for companies that traditionally offer group plans to their employees. It gives employers flexibility to scale benefits, control costs, and make the design work for their unique staffing situation. Here's what to know so far about ICHRA rules.
Before we dive in, let's all take a moment to go over what an ICHRA actually is (or what it will be, that is, when it becomes an actual thing in January 2020). An Individual Coverage HRA is a tax-advantaged solution that allows a company of any size to reimburse employees for individual health plan premiums and qualified medical expenses. It works like this: the employer designs their HRA and determines the amount to reimburse on a monthly basis to different classes of employees, say $200 a month for a their part-time team, $400 a month for remote employees, and a traditional group plan for the full-time team. Employees would then submit proof of an expense for reimbursement and get paid back.
This transaction is tax-free, meaning that employers don't get dinged for payroll tax on the amount and the employees don't have to recognize the reimbursements as income.
The biggest benefit of all is that with ICHRA, employers can scale their benefits based on employee classes and employees can choose the best plan that works for them.
This is the opposite of one-size-fits-all. And it's positioned to completely rewrite the way companies offer health benefits to their staff.
Where are the ICHRA rules coming from?
So far, the best source information we have about the rules of the proposed ICHRA is the executive order from President Trump last fall which instructed the U.S. Departments of the Treasury, Health and Human Services, and Labor to expand the usability of HRAs. This was the third step the President has used to reform healthcare policy through regulatory changes.
In this post, we will go over the ICHRA rules that we know so far and build on what we know about how HRAs work through our experience being the top provider of QSEHRA administration for small businesses.
While QSEHRAs (qualified small employer health reimbursement arrangements) and individual coverage HRAs differ in more ways than one, we like to think of the ICHRA is a supercharged version of the QSEHRA that extends the tax-advantaged benefits that small business owners enjoy to a larger group of employers.
As a side note, if you are a small business and QSEHRA sounds like a good fit, check out our QSEHRA guide here or chat with one of our small business experts on our website!
The ICHRA rules to know
- Any size of company is eligible to offer an ICHRA.
- Employers must maintain Minimum Essential Coverage (MEC), aka coverage that meets PHS 2711 & 2713.
- Employees in different classes (think geographic location, age, seasonal, part-time, abroad) can be offered different levels of benefits. (We think THIS IS HUGE in terms of giving more flexibility and affordability to employers).
- There are no maximum or minimum limits for monthly reimbursement rates.
- Employers can choose to offer an ICHRA any time throughout the year (not just during open enrollment!).
- Employees have a 60 day window to enroll in an individual health plan once the ICHRA becomes available, as it triggers a special enrollment period). This makes finding an individual plan that meets MEC outside of open enrollment much easier for employees.
- 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)
- 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 like QSEHRA.)
- If ICHRA is deemed "unaffordable," employees can choose between using Premium Tax Credits or the ICHRA. If it is deemed affordable, they can't opt out.
- ICHRA can be used to reimburse for premiums and qualified medical expenses, including excepted benefits like dental, vision.
That's all for now!
What comes next
The finalized ICHRA rules will come out some time before January, but given the direction it is headed so far, we believe it has potential to dramatically reshape the small group insurance market in coming years. We couldn't be more excited about these coming changes and will keep you informed as more details rise to the surface.
In the meantime, check out our ICHRA FAQ page for more answers!