* Updated June 27, 2019* Some of the requirements of the Affordable Care Act (ACA) apply only to large employers. One requirement is that ALE's must offer affordable minimum essential coverage that provides minimum value to full-time employees as well as their dependents. A big question surrounding all of the HRA changes coming our way in 2020 is will those who offer an Individual Coverage HRA (ICHRA) meet the corporate mandate?
What is the corporate mandate?
Under the health care reform law of 2010 (Affordable Care Act) large employers (ALE's that have at least 50 full-time employees or full-time equivalent employees) are required to offer health care coverage to their employees or pay a tax penalty to the federal government. The rule is formally known as the Employer Shared Repsonbility Provisions, but sometimes you will see it referred by its IRS Code Section 4980H. It is also more commonly referred to as the "pay or play" rule.
Does ICHRA meet the corporate mandate?
The short answer is yes, by offering the Individual Coverage HRA employers are meeting the employer mandate to offer coverage.
When will an ALE owe the penalty?
Good question. This will depend on if the ICHRA offered is deemed affordable and if any of the employees accept a premium tax credit.
There are two parts of the code employers need to be aware of:
Code 4980H(a)- The applicable large employer (ALE) fails to offer an eligible employer-sponsored plan to at least 95% of its full-time employees and their dependents and at least one full-time employee skips the group plan and purchases an exchange plan with a premium tax credit for the month .
Code 4980H(b)- At least one full-time employee is allowed the premium tax credit (PTC), which may occur if the eligible employer-sponsored plan is not affordable or does not provide Minimum Value (MV), or if the employee was not offered coverage.
The penalties are calculated on a month by month basis.
Currently, there aren’t any calculations or benchmarks set to help large employers (ALEs) who are held to the corporate mandate determine what their minimum HRA contributions will have to be in order to satisfy the mandate.
However, the IRS is expected to set these benchmarks in order to help large employers with this process. Notice 2018-88 does provide some baseline guidance and examples for large employers and will be updated soon in regards to interactions with ICHRA.
How affordabililty affects the HRA contribution amount
The key to determine if the employer will be subject to the penalty under the employer shared responsibility provision will come down to affordability. Is the HRA contribution amount the employer is offering considered affordable?
To determine the affordability of ICHRA, the lowest cost silver plan in the employee's area will be used for the benchmark. The silver plan price will be set for self-only pricing of a non-tobacco user. ICHRA will be deemed affordable if the out of pocket cost to the employee is less than 1/12 of their household income.
Expected Safe Harbors
Determining the affordability on an employee by employee basis could be a huge administrative burden for an employer. To alleviate some of the burden and to make the process more practical, the Notice put forth three anticipated safe harbors that could be used to determine what an ICHRA is affordable for an employee.
- Location Safe Harbor- this would allow the employer to use the employee’s primary site of employment in determining the affordability by the PTC regulations.
- Calendar and Non-Calendar Year Safe Harbor- because employers typically determine the health benefits that will be offered in the upcoming plan year well in advance, this safe harbor would allow the affordability of an ICHRA that has a calendar plan year to be determined based on the cost of the applicable affordability plan for the prior calendar year.
- Affordability- this safe harbor allows ALEs to estimate an employee's household wages using one of the following methods: Form W-2 Wages, Rate of Pay, or Federal Poverty Line
The Treasury Department and IRS anticipate supplying further guidance on these safe harbors, and it’s anticipated that the Location Safe Harbor can be used by an employer in addition to the Calendar or Non-Calendar Year Safe Harbor.
What about Minimum Value?
The good news is that minimum value is essentially going to be a non-issue for employers. In order to participate in the Individual Coverage HRA, employees will have to purchase plans from the health exchange or private individual market that are compliant with PHS Act sections 2711 and 2713. Medicare (Part A and B or Part C) is the only plan allowed not purchased from the marketplace.
Please note that the following plans do not meet minimum value or have been specifically mentioned as not qualifying for ICHRA: sharing ministries, short term plans, group plans, tricare.
Need help determining if ICHRA is right for you?
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.
I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!