As more businesses become aware of the individual coverage health reimbursement arrangement (ICHRA), we at PeopleKeep have been flooded with questions about what it is, how it works, and who can offer it.
The ICHRA is a health benefit created through federal regulation, which allows businesses of all sizes to reimburse employees for personal health insurance policies and other medical expenses.
The ICHRA is a separate benefit from the qualified small employer HRA (QSEHRA), with its own strengths and use cases. It gives businesses another solid alternative to group health insurance.
In this post, we’ll cover some of the most frequently asked questions about the ICHRA to help you learn more about the benefit.
Let’s dive in.
1. Who can offer the ICHRA?
Businesses, nonprofits, churches, local governments, and other groups can offer the ICHRA.
There are no size restrictions or minimum participation requirements for employees.
2. Can businesses offer an ICHRA and group health insurance?
Yes. However, the ICHRA and the group health insurance policy must be offered to separate groups of employees.
That is, employees must never be in a situation where they have a choice between the ICHRA and group health insurance. The employer must make decisions about eligibility themselves.
Businesses can base their eligibility requirements on 11 different employee classes (see "What are the ICHRA's employee classes?" below).
3. Which employees can participate in the ICHRA?
Employee eligibility is based on two factors: what the regulations dictate and what the business decides.
The regulations require all employees (and their dependents, if eligible) to be covered by individual health insurance in order to participate in the ICHRA. Any employees covered by a spouse’s group plan or short-term insurance, belonging to a health care sharing ministry, or not covered at all cannot participate in the ICHRA.
Businesses also have jurisdiction over employee eligibility. They can decide who is eligible for the ICHRA based on 11 different employee classes (see “What are the ICHRA’s employee classes?” below).
4. What counts as “individual coverage” for the ICHRA?
To participate in the ICHRA, employees must be covered by individual health insurance. This can be an individual health policy purchased from a public exchange, a policy purchased off the exchange, Medicare Parts A and B, or Medicare Part C.
5. How do employees get individual coverage for the ICHRA?
If employees are purchasing individual health insurance that isn’t Medicare, they’ll need an enrollment period during which they can shop for coverage either on or off the public exchange. They can get this enrollment period either during the annual open enrollment period in November and December or through a special enrollment period (SEP).
If your business is offering an ICHRA with a start date of January 1, your employees will participate in the open enrollment period. This enrollment period takes place from November 1 to December 15, and employees can use it to purchase health insurance either on or off the public exchange.
If your ICHRA has a mid-year start date (or if you don’t decide to offer the ICHRA in time for your employees to participate in open enrollment), your employees will need to use an SEP to gain coverage. Becoming newly eligible for an ICHRA is a qualifying life event for an SEP, so once employees are eligible, they’ll receive an SEP of 60 days during which they can choose and purchase individual coverage.
All new hires will receive an SEP as well, as soon as they become eligible for the ICHRA.
If your ICHRA is on a non-calendar year basis, your employees will get an annual SEP when your benefit renews. The triggering event will be the last day of the ICHRA’s coverage for that year.
6. How much can businesses offer through the ICHRA?
Businesses can offer as much or as little as they’d like to employees through the ICHRA.
Businesses can choose to offer different allowance amounts to different employees based on 11 different employee classes (see “What are the ICHRA’s employee classes?” below). They can also differentiate allowance amount based on the size of the employee’s family and the employee’s age.
If your business decides to offer older employees in the same class more money, you must offer the oldest employees no more than three times the allowance amount of the youngest employees in the class. For example, an employee class with employees ranging in age from 30 to 60 that offered 30-year-olds $100 a month would only be able to offer 60-year-olds $300 or less.
7. What are the ICHRA’s employee classes?
The ICHRA allows businesses to determine ICHRA eligibility and to offer different allowance amounts to different employees based on 11 different employee classes.
- Full-time employees
- Part-time employees
- Salaried employees
- Hourly employees
- Seasonal employees
- Temporary employees working for a staffing firm
- Employees who live in different locations, based on rating areas
- Foreign employees who work abroad
- Employees covered by a collective bargaining agreement
- Employees in a waiting period
- A combination of two or more of the above
For more information, see “The individual coverage HRA (ICHRA)’s employee classes: How do they work?”
8. What are the ICHRA’s employee class size requirements?
Depending on your business’s circumstances, you may need to abide by certain class size requirements put in place by ICHRA regulations.
Employee class size requirements apply to businesses that:
- Want to offer both group health insurance and the ICHRA
- Want to use the following five employee classes to determine ICHRA eligibility:
- Full-time status
- Part-time status
- Salaried pay
- Hourly pay
- Geographic location
If your business meets these criteria, you can only use those ICHRA classes if the number of employees in each class is:
- 10, for businesses with fewer than 100 employees
- Equal to or greater than 10 percent of all employees, for businesses with between 100 and 200 employees
- 20, for businesses with more than 200 employees
These class size requirements only apply in the circumstances outlined above. If your business is only offering the ICHRA, or if your business isn’t using those five classes to determine ICHRA eligibility, you don’t need to meet the class size requirements.
Employee class size requirements never apply to classes used to differentiate allowance amount.
9. What can the ICHRA reimburse?
The ICHRA can reimburse all items outlined in IRS Publication 502, including health insurance premiums.
Your business may choose to restrict this list to only certain items. For example, you may choose to offer an ICHRA that only reimburses health insurance premiums.
10. How does the ICHRA affect premium tax credits?
Individuals participating in the ICHRA cannot receive premium tax credits.
However, employees who are eligible for premium tax credits and whose HRA allowance is considered “unaffordable coverage” under the Affordable Care Act can opt out of the ICHRA and collect their premium tax credits.
Employees can opt out of the ICHRA once every benefit year but must make the decision before the plan begins.
11. What are the notice requirements associated with the ICHRA?
Businesses offering the ICHRA must send a formal notice of the benefit to their employees once a year.
For existing ICHRAs, businesses must send employees the notice at least 90 days before the start of the new plan year.
However, the final rule provides an exception to the 90-day notice requirement for businesses established less than 120 days prior to the beginning of the first ICHRA plan year. For these newly established employers, the employee notice may be provided no later than the date the HRA may first take effect for the participant.
Among other items, the notice must contain:
- The terms on which the ICHRA is offered, including the employee’s allowance amount and the maximum dollar amount made available to single employees (this figure will be used in determining whether the ICHRA qualifies as “affordable coverage”)
- How being offered the ICHRA affects employees’ eligibility for premium tax credits
- The right of employees to opt out of the ICHRA
- The dates of when coverage will be available and when the HRA plan year begins and ends
- A statement that the ICHRA isn’t a QSEHRA or any other type of HRA
- Contact information of the person who will help answer questions about their ICHRA benefit
The federal regulations include a sample notice businesses can adopt to serve as their employee notice.
12. How does the ICHRA compare with the QSEHRA?
The ICHRA and the QSEHRA are two separate benefits with their own advantages and use cases. For some businesses, the ICHRA will be a better fit; for others, the QSEHRA will be the best choice.
Here’s a chart comparing the major components of the ICHRA and the QSEHRA.
|Employer eligibility requirements||Available to any business that doesn’t offer employees a choice between the ICHRA and group health insurance.||Available to businesses with fewer than 50 full-time employees that don’t offer group health insurance.|
|Employee eligibility||The business can structure eligibility guidelines based on 11 specified employee classes, and employees must have individual health insurance to participate.||All full-time employees are automatically eligible. Businesses can choose to extend eligibility to part-time employees.|
|Group health insurance integration||Businesses can offer group health insurance, but not to the same class of employees to whom they offer the ICHRA.||Businesses can’t offer group health, dental, or vision insurance.|
|Annual allowance caps||None.||$5,150 for single employees and $10,450 for employees with a family in 2019.|
|Rollover guidelines||Month to month and year to year permitted.||Month to month and year to year permitted, but total reimbursements in one year can’t exceed the annual allowance cap.|
|Budgetary guidelines||Businesses can offer different allowance amounts to different employees based on 11 specified classes, as well as age and family size.||Businesses can offer different allowance amounts to different employees based on age and family size.|
|Premium tax credit guidelines||Employees cannot have both the premium tax credit and the ICHRA. They may waive premium tax credits and participate in the ICHRA, or opt out of the ICHRA and collect premium tax credits if the HRA allowance amount is considered unaffordable.||Employees with premium tax credits can participate in the QSEHRA, but their premium tax credit will be reduced by the amount of their QSEHRA allowance. Employees cannot opt out of the QSEHRA.|
|Current availability||Available beginning January 1, 2020.||Available now.|
For more information, check out “Individual coverage HRA (ICHRA) vs. qualified small employer HRA (QSEHRA): How do they compare?”
13. Can a business offer both an ICHRA and a QSEHRA?
No, a business can’t offer both an ICHRA and a QSEHRA under any circumstances.
14. Can a business have a non-calendar year ICHRA?
Yes. Businesses can choose to have an ICHRA that begins and renews at any point during the year.
Employees with a non-calendar year ICHRA will have access to an annual special enrollment period (SEP), during which they can shop for and purchase individual coverage.
One thing to keep in mind with a non-calendar year ICHRA is that employees will still have their deductibles reset on a calendar year basis.
15. How can I offer an ICHRA in 2020?
If you’re interested in offering an ICHRA in 2020, make sure you familiarize yourself with ICHRA employer requirements.
For the best experience, make a decision on the ICHRA as early as possible. This will give you time to send out the required ICHRA notice and prepare your employees to shop during the open enrollment period beginning November 1, 2020.
The ICHRA is an exciting new health benefits option for all businesses. Many groups still have questions about the details, though.
If you have questions about the ICHRA that weren’t answered here, feel free to check out some of our other ICHRA resources:
- What is the individual coverage HRA (ICHRA)?
- How does the individual coverage HRA (ICHRA) work?
- The individual coverage HRA (ICHRA)’s employee classes: How do they work?
- ICHRA eligible expenses: What are they?
- How to set up an individual coverage HRA (ICHRA)
- Individual coverage HRA (ICHRA): pros and cons
- Individual coverage HRA (ICHRA) vs. qualified small employer HRA (QSEHRA): How do they compare?
- Individual coverage HRA (ICHRA) plan document requirements: What are they?
- Does the ICHRA satisfy the individual mandate?
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