Individual coverage health reimbursement arrangements (ICHRAs) are one of the newest ways to provide a valuable healthcare benefit to your employees. If you’d like to offer this benefit or need assistance, ask an HR consultant how you can get started. In the meantime, read on for more information about ICHRAs!
The U.S. Departments of Labor, Health and Human Services, and the Treasury have released final regulations regarding individual coverage health reimbursement arrangements (ICHRAs)—paving the way for a new and more flexible kind of healthcare benefit.
Beginning on January 1, 2020, employers will be able to offer ICHRAs to reimburse employees for a variety of medical costs. These expenses include purchasing their own insurance, as well as covering copays, deductibles, increased fees for out-of-network providers and other costs.
While this sounds similar to current options such as a health savings account (or HSA), there are differences. An individual coverage HRA is not an account from which the employee draws funds. Instead, the employee pays for the expenses out of pocket and is then reimbursed by his or her employer. A maximum dollar amount per year for reimbursements is set in advance by the employer.
Individual coverage HRAs are advantageous for employers and employees alike. Reimbursements are made with tax-deferred funds, providing a key employee tax savings. Employees will also have more options when it comes to their health insurance plans, since they can use reimbursement funds toward the purchase of outside plans (including those available from the exchange established under the Affordable Care Act).
On the employer side, the flexibility of an ICHRA makes it an appealing benefit to attract and retain high quality workers. Smaller businesses in particular will benefit, because an individual coverage HRA has far lower administrative costs. Any sized business, nonprofit or other organization can offer this benefit, giving smaller entities a way to compete with larger firms offering actual health insurance plans.
Additionally, an ICHRA satisfies the ACA employer mandate that requires companies with at least 50 full-time employees to offer health insurance.
Several rules must be followed when offering an individual coverage HRA:
Employers must offer the ICHRA on the same terms to all individuals within one or more specific employee classes. Per the departments cited above, there are nine such classes:
- Full-time employees
- Part-time employees
- Employees working in the same geographic location (generally, the same insurance rating area, state or multi-state region)
- Seasonal employees
- Employees in a unit of employees covered by a particular collective bargaining agreement
- Employees who have not satisfied a waiting period
- Non-resident aliens with no U.S.-based income
- Salaried workers
- Non-salaried workers (such as hourly workers)
- Temporary employees of staffing firms
- Any group of employees formed by combining two or more of these classes
You can increase the amounts you offer on your ICHRA for older workers and for workers with more dependents. Otherwise, however, the plan must be the same for everyone.
Employers cannot offer an ICHRA and a traditional group health plan to the same group of employees. That said, you can offer both as a general procedure. For example, you might provide a health insurance plan for your full-time employees and an HRA option to your part-time staff. Since these employees fall into distinctly separate categories, this would be allowed.
ICHRAs will also feature a new hire rule which will allow employers to offer new employees this HRA while grandfathering existing employees in a traditional group health plan. This is a great way to transition your workforce from a group plan to an individual coverage HRA.
An employee (and any covered dependents) must have health insurance to use an ICHRA. The plan can be one purchased on or off the ACA exchange, as well as Medicare Parts A and B or Medicare Part C. If an employee wants to use ICHRA funds to help pay this premium and does not yet have coverage, he or she must obtain coverage beforehand. There are two ways this can be done:
- Your company’s ICHRA has a start date of January 1, and its decision to offer this benefit came at least 90 days before that date). You must participate in the open enrollment period from November 1 through December 15 prior to that start date.
- Your company’s ICHRA has a mid-year start date (or the company did not decide to offer it in time for the open enrollment period). You would participate in a special enrollment period (SEP), much like a new employee would do when joining the company mid-year.
The employer must provide notice to eligible participants to let them know that you are providing an ICHRA. This is similar to the notification requirement when providing an actual health insurance plan.
The DOL, HHS and the Treasury have compiled an FAQ document with more detailed information about this new benefit. If you run a medical practice or other healthcare facility, we recommend that you contact your healthcare CPAs to see how patient use of ICHRAs might affect your operations and billing processes. And if you’d like to offer this benefit or need assistance, ask an HR consultant how you can get started!
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