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.
How will the ICHRA work in 2020?
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 11 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. This could be an individual policy purchased on or off the public exchange, Medicare Parts A and B, or Medicare Part C.
Those who qualify for premium tax credits will have a choice to opt out in order to collect the credits (if the HRA allowance amount is considered "unaffordable"), 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:
- Location. With this safe harbor, employers could use the employee’s primary site of employment as the standard for affordability calculations.
- Affordability. With this safe harbor, employers could estimate an employee’s income using measures like the employee’s W-2, or rate of pay.
- 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 as we move closer to 2020.
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.
Businesses must also share notice of the ICHRA with employees, including the HRA's rules regarding premium tax credits.
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.
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.