Are you a business owner or manager considering offering the individual coverage HRA (ICHRA) to your employees? With the regulations and compliance standards required for offering an HRA, it can feel like a daunting task.
In this post, we’ll discuss what the ICHRA is, how it works, and what you need to know to offer the benefit correctly.
What is the ICHRA?
The ICHRA is a new health reimbursement arrangement available to businesses of any size beginning January 1, 2020.
With an ICHRA, companies can offer their employees a set allowance of money. The employees purchase an individual health insurance policy and, depending on what the business chooses to allow, other health care services or items. Employees then submit proof of their expenses, and the business reimburses them up to the available allowance amount.
Why offer the ICHRA?
With an ICHRA, employers can vary employee eligibility by using 11 employee classes, choose the amount of allowance to offer, and offer a group health insurance plan at the same time (though not to the same classes of employees). Employers can also provide different allowance amounts to different employee classes.
The ICHRA is a good option for businesses looking to provide an affordable benefit that can be personalized in terms of budget, employee eligibility, and benefit offerings.
What to know
Defining eligibility: When offering the ICHRA, companies can choose to offer the plan to all of their employees, or they can limit the eligibility to specific employee classes. Any employee that is offered the plan must have an individual health insurance plan to participate.
The 11 employee classes allowed under the ICHRA are:
- Full-time employees
- Part-time employees
- Hourly employees
- Seasonal employees
- Temporary employees working for a staffing firm
- Salaried employees
- Employees in a waiting period
- Employees covered under a collective bargaining agreement (e.g., unionized employees)
- Foreign employees working abroad
- Employees working in different locations based on rating areas
- A combination of two or more of the above
Providing notice: If your company decides to offer the ICHRA, you must notify your employees of the upcoming benefit at least 90 days before the plan start date or the first day the employees become eligible. The Departments of the Treasury, Labor, and Health and Human Services provided a model notice employers can use to make sure they’re meeting the notice requirements. Employers aren’t required to use the model as long as their notice is provided in the correct time frame and meets the requirements. For plans starting by January 1, 2020, employers must provide notice to employees on or before October 3, 2019.
Legal plan documents: To remain compliant when offering the ICHRA, your company must have a legal plan document defining the structure of the benefit. The document establishes how the plan functions and who is eligible and defines all of the policies and procedures around the plan. There are 10 specific items that should be included in the plan documents.
The 10 items are:
- Named fiduciaries and plan administrators and their responsibilities
- Eligibility requirements for the ICHRA
- Effective dates of participation for eligible employees
- Description of the benefits that are provided and excluded
- How the ICHRA is funded and how reimbursements are made
- Claims procedures
- HIPAA privacy officers and rules regarding protected health information
- Information on federal mandates
- Procedures for amending the plan
- Procedures for plan termination
Setting allowances: The ICHRA doesn’t have a maximum contribution limit. That means that a business can offer employees an allowance as large as they’d like. When setting allowances, the company should determine which employees will be included in the benefit based on their class settings. Next, they should determine the total amount they’d like to offer to each eligible employee for the year. Allowance amounts can vary within each class by employee age or family status, as long as allowances based on age aren’t greater than three times the amount for the oldest employees vs. the youngest employees in the class. Businesses offering the ICHRA can also opt to allow unused allowances to roll over from year to year. If your company decides to allow rollover, consider your budget for next year when deciding on an allowance. Amounts that roll over will be added to the allowances offered in the following year.
Proof of purchase: After an employee incurs an expense, they must provide proof of it to the business. For the expense to be approved, the documentation must include: a description of the service or product, the amount billed, and the date the expense was incurred. Invoices or receipts usually satisfy this requirement, but other documents like an explanation of benefits from the employee’s insurance company can also work. Before submitting an expense for approval, employees must also attest that they are covered under an individual coverage policy.
Providing reimbursements: If the expenses submitted by an employee are eligible for reimbursement, and the provided documentation meets the requirements, the business must approve the requests and reimburse them up to the amount of their available allowance. If the expenses aren’t eligible, the business must follow the procedure for denied claims outlined in its ICHRA plan documents. Most businesses offering an HRA will include the tax-free reimbursement in the employee’s next paycheck. When providing reimbursements for employees, your business has the option of offering them a check, cash, electronic funds transfer, or reimbursing them through payroll. If you choose to offer the reimbursements through payroll, make sure to add a nontaxable line item so the reimbursements aren’t taxed like regular income.
The ICHRA is a flexible benefit, but the rules governing it are complicated. Businesses can offer the ICHRA on their own, but it can be time-consuming, complex, and difficult to ensure they are maintaining plan compliance. Using a third-party benefits administration platform can help cut down on the time it takes to administer the benefit and alleviate compliance concerns.
For more information about the ICHRA, check out our other resources: