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Small Business Employee Benefits and HR Blog

What to expect from the individual coverage HRA (ICHRA) in 2020

March 12, 2019
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Beginning January 1, 2020, U.S. businesses will have a new health benefits option: the individual coverage health reimbursement arrangement (ICHRA).

Created through proposed regulations from the federal government, the ICHRA allows businesses to reimburse employees tax-free for individual health insurance policies and other health care expenses.

The ICHRA represents an important step forward for HRAs. Though similar to the existing qualified small employer HRA (QSEHRA), there are several differences between the two, and some businesses may prefer the ICHRA.

If your business is interested in the ICHRA, stick with us. In this post, we’ll cover what to expect for the rollout of the new benefit next year.

What still needs to happen regarding the ICHRA before 2020?

The regulations that proposed the ICHRA were issued in response to a 2017 executive order from President Donald Trump. The proposals, published by the Departments of the Treasury, Labor, and Health and Human Services, followed in October 2018.

As of this posting, the Departments haven’t issued a final rule verifying the creation of the ICHRA. However, given what we know about the process, we expect the rule shortly.

When PeopleKeep submitted comments on the rule to the Federal Register, we examined much of the public and industry response to the proposals. Although we differ on specifics, no commenter opposed the creation of the ICHRA.

We also know there is strong political appetite for HRA expansion. The QSEHRA was created through bipartisan legislation, and an architect of the Affordable Care Act offered praise for the Trump administration’s efforts with the QSEHRA.

There’s no official timeline for the released of final rule, but we expect the ICHRA to be finalized later this year in time for its proposed release on January 1, 2020.

How will the ICHRA work in 2020?

Though some details could change when the Departments issue the final rule, we expect the ICHRA in 2020 to work largely according to current proposals.

With the ICHRA, businesses will offer employees a monthly allowance of money. There are no minimum contribution requirements or maximum contribution caps, and businesses can offer different allowance amounts to different employees based on nine employee classes.

Employees will then purchase health care, including individual health insurance, with their own money and submit proof to their business.

The business will review the documentation and, if the expense is eligible, will reimburse the employee tax-free up to their allowance amount.

Employees and their families must be covered by individual health insurance to participate in the ICHRA. Those who qualify for premium tax credits will have a choice to opt out in order to collect the credits, or waive the credits in order to participate in the ICHRA.

Who can offer the ICHRA in 2020?

Any business can offer the ICHRA in 2020, regardless of size.

The only requirement is that businesses cannot offer both group health insurance and the ICHRA to the same class of employees.

Will the ICHRA satisfy the 2020 employer mandate?

The Departments’ proposed rules and IRS Notice 2018-88 both make it clear that the federal government intends to allow the ICHRA to satisfy the employer shared responsibility provision, or employer mandate, placed upon businesses with more than 50 full-time-equivalent employees.

To satisfy the employer mandate, the ICHRA must offer what the ACA defines as “affordable coverage.” This means health insurance for the employees should cost no more than 9.86% of the employee’s household income, using the lowest cost silver plan on the local exchange as a standard and incorporating the employer’s ICHRA contributions.

Because determining affordability for each employee promises to be a massive administrative headache for the employer, Notice 2018-88 proposes three safe harbors employers could use to determine whether the ICHRA is affordable for the employee:

  1. Location. With this safe harbor, employers could use the employee’s primary site of employment as the standard for affordability calculations.
  2. Affordability. With this safe harbor, employers could estimate an employee’s income using measures like the employee’s W-2, or rate of pay.
  3. Calendar year. With this safe harbor, employers who institute an ICHRA for the following calendar year could use the existing year’s estimates as a baseline for affordability.

Other information regarding guidelines for the ICHRA’s fulfillment of the employer mandate is expected in the final rule.

What are the key dates for the ICHRA in 2020?

Businesses will be able to start offering the ICHRA on January 1, 2020.

Employees who become newly eligible for the ICHRA will qualify for a special enrollment period lasting 30 days, in which they can buy individual health insurance.

There are no specified notice requirements associated with the ICHRA.

What else can we expect for the ICHRA in 2020?

Given that the ICHRA carries no allowance caps and provides for greater employer flexibility on benefit eligibility and structuring allowance amounts, we expect the ICHRA to be a popular offering in 2020.

In fact, we expect the ICHRA to rival the QSEHRA as businesses become more aware of their benefits options.

Conclusion

The ICHRA is an exciting new option for 2020.

However, businesses considering offering the ICHRA shouldn’t wait until next year to get started. The QSEHRA is available now, and provides employees with much of the same benefits as the ICHRA.

Additionally, with an HRA administrator like PeopleKeep, it will be easy for businesses to switch from an QSEHRA to an ICHRA if they choose.

To learn more about your options now and next year, please contact one of our skilled personalized benefits advisors.

Questions? Let us know in the comments below.

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