New Individual Coverage HRA Allows You to Reimburse Employees for Health Insurance
The new Individual Coverage HRA (ICHRA) lets you help employees with their health care costs without fear of ACA penalties. Starting January 1, 2020, employers can offer this new ICHRA.
The ICHRA allows you to
- reimburse (free of payroll and income tax) employees’ individual health care premiums and other permitted medical expenses, up to a dollar limit you choose—not one imposed by the government;
- offer a regular group health plan (or not—it’s your choice) to certain employees and ICHRAs to other employees;
- let employees pay for coverage, beyond the amount you reimburse, via a cafeteria plan if those employees have off-Exchange individual insurance coverage;
- offer higher reimbursement levels to older workers and workers with more dependents;
- let employees roll over excess ICHRA funds from year to year, without limitation; and
- help employees with their health care costs without fear of running afoul of the ACA and its dreaded $100 per-employee-per-day penalty.
The ICHRA is a plan for employees. It’s not for the owners of partnerships, proprietorships, or S corporations.
ICHRAs are available only to employees enrolled in
- individual Exchange coverage,
- other individual insurance coverage, or
- If you already offer a traditional group health plan, you cannot offer an ICHRA to the employees who are eligible for the group plan. Employers are legally barred from giving employees a choice between a group plan and the ICHRA.
But you can offer a traditional group health plan to some classes of employees and the ICHRA to other classes of employees. Classes may be distinguished on the following factors:
- Full-time employees
- Part-time employees
- Employees working in the same geographic location
- Seasonal employees
- Employees covered by the same collective bargaining agreement
- Employees who have not satisfied a waiting period
- Nonresident aliens with no U.S. income
- Salaried workers
- Non-salaried (e.g., hourly) workers
- Temporary employees
- Any group formed by a combination of two or more of the groups listed above
Minimum class size requirements apply if you are offering a traditional group health plan to some employees and the ICHRA to other employees. The minimum class sizes are
- 10 employees, for employers with fewer than 100 employees;
- 10 percent of the total number of employees, for employers with 100 to 200 employees; and
- 20 employees, for employers with more than 200 employees.
- Integration with Cafeteria Plans
What happens if the reimbursement amount you provide is insufficient to cover an employee’s premiums? Can you allow the employee to pay the balance pretax through a cafeteria plan?
Yes, but only if the employee has a non-Exchange health plan. The tax code prohibits employees from making salary reduction contributions to a cafeteria plan to purchase coverage offered through the Exchange. But if the employee has a non-Exchange plan, this is permissible, subject to the existing rules that govern cafeteria plans.
The Clock Is Ticking
Employers can start offering ICHRAs on January 1, 2020. You don’t need to provide the 90 days’ required notice in the first year, so you still have time to get your plan in place before January 1.
But keep in mind that your employees will need to obtain individual insurance coverage and many may need to use the open enrollment period that runs from November 1 through December 15. This means you should have your notice to the employees before November 1 if you want your ICHRA effective on January 1, 2020. We have a model notice that you can use, and it includes information on Exchange enrollment.
The new law provides that the individual health plans purchased by your employees are not subject to ERISA, provided the following safe-harbor requirements are met:
- An employee’s purchase of any individual health insurance coverage is voluntary (the fact that individual health insurance coverage must be purchased in order to participate in an ICHRA does not make it involuntary).
- The employer does not endorse any specific issuer or insurance coverage, though employers may provide general information, such as directing employees to HealthCare.gov or a state insurance commissioner’s office.
- Reimbursement for individual health insurance premiums is limited to individual health insurance coverage that does not consist solely of excepted benefits.
- The employer does not receive cash or other kickbacks in connection with the employee’s selection or renewal of coverage.
- All plan participants are notified annually that their individual health insurance coverage is not subject to ERISA (this statement is included in the model notice).
If you are interested in the ICHRA, you need to move quickly.