Some of the requirements of the Affordable Care Act (ACA) apply only to large employers (typically companies with 50 or more full-time employees.) One such requirement is that you must offer affordable minimum essential coverage that provides minimum value to your full-time employees as well as their dependents. So 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?
Does ICHRA meet the corporate mandate?
The short answer is yes.
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 the large employers with this process. Notice 2018-88 does provide some baseline guidance and examples for large employers.
It should be noted that employees cannot receive both HRA contributions and their proposed tax credits (PTC). However, if an employee finds that their tax credits prove more financially beneficial, they will be allowed to opt out of the ICHRA for at least a year and use their PTC to pay for their health insurance instead.
Keep in mind that while only large employers who are subject to 4980H are required to offer “affordable” ICHRA plans, if you are a small employer with a company employing fewer than 50 people, you must still determine affordability before employees could decide to opt-out of the ICHRA.
Determining HRA contribution amount
The PTC regulations use a formula that incorporates the lowest cost silver plan for self-only coverage offered by the Exchange in the employee’s area to determine the required HRA contribution. Notice 2018-88 provides that the affordability of an ICHRA would be determined using the same formula.
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 year 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. Another safe harbor based on employee age was also discussed but not yet provided. Time will tell whether or not they opt to include that in the final rules.
Determining Minimum Value (MV) requirements
Employers can determine their MV by doing their own calculations, providing they apply them consistently to different employee classes or they will be able to utilize some of the safe harbors listed above. As previously mentioned, per PTC regulations, the HRA contributions made by an employer using an ICHRA 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%).
We are just as excited as you are to find out what will happen with these proposed HRAs now that the comments period has closed. The Departments of Treasury, Labor, and Health and Human Services requested for commentary on their proposed regulations and Take Command Health responded with our own comprehensive and exclusive research. We believe this research could help set up this new generation of HRAs for success. We’re busy tracking these changes carefully and will report back so we can share how these will help our small business clients.
In the meantime, chat with our team on our website or check out our FAQs for ICHRA to find out the answers to the questions we hear most.