Small Business Employee Benefits and HR Blog

Who is eligible for the individual coverage HRA (ICHRA)?

February 26, 2019
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In January 2020, businesses will have a new health benefits option: the individual-coverage health reimbursement arrangement (ICHRA).

Created through new regulation from the Departments of the Treasury, Labor, and Health and Human Services, the ICHRA is a partial restoration of the old stand-alone HRA. With the ICHRA, businesses can reimburse employees tax-free for individual health insurance and other medical expenses.

Here at PeopleKeep, we expect the ICHRA to help thousands of small businesses offer health benefits for the first time. But which businesses are eligible to offer the benefit, and which employees can participate?

In this post, we’ll cover ICHRA eligibility for businesses, their employees, and employees’ families.

Let’s dive in.

The Complete Guide to Offering an ICHRA in 2020. Download the eBook.

What is the ICHRA?

The individual-coverage HRA (ICHRA) is an IRS-approved, account-based health benefit that allows businesses to reimburse employees tax-free for health care.

With the ICHRA, businesses offer monthly allowances to employees. There are no minimum or maximum contribution limits, and businesses can offer different amounts to different employees based on nine different employee classes (see a list of these employee classes in “Which employees can participate in the ICHRA?” below).

Employees then purchase health care, including individual health insurance. They submit proof they incurred an expense to the business, and the business reimburses them tax-free up to their allowance limit.

The ICHRA will be available and compliant in 2020, and differs in several ways from the qualified small employer HRA (QSEHRA).

Which businesses can offer the ICHRA?

The ICHRA is available to businesses of all sizes that have at least one W-2 employee.

Businesses can offer group health insurance as well as the ICHRA, but they cannot offer both group health insurance and the ICHRA to the same employee class. For example, businesses could offer group health to full-time employees and the ICHRA to part-time employees, but they can’t offer full-time employees a choice between group health and the ICHRA.

The federal government has said that offering the ICHRA will meet employer mandate requirements, regardless of whether the business also offers group health insurance.

Which employees can participate in the ICHRA?

Businesses have some freedom in determining ICHRA eligibility.

Currently, they can structure eligibility requirements based on nine employee classes, including:

  1. Full-time employees
  2. Part-time employees
  3. Seasonal employees
  4. Employees in a waiting period
  5. Employees covered by a collective bargaining agreement
  6. Employees under age 25
  7. Employees who work in different locations, based on rating areas
  8. Foreign employees who work abroad
  9. A combination of two or more of the above*

For example, a business could choose to offer the ICHRA to all its employees, or it could choose to offer it to full-time employees only. It could also choose to offer it only to employees 25 years old and older, or to exclude employees in a waiting period.

In addition to meeting these eligibility requirements, employees must also have individual health insurance coverage to participate.

Employees covered by a spouse’s employer’s group health insurance, employees belonging to a health care sharing ministry like Medi-Share, and employees without health insurance cannot participate in the ICHRA.

However, employees currently without health insurance will be given an opportunity to shop for coverage when they become newly eligible for the ICHRA. Employees in this situation will qualify for a special enrollment period, giving them 60 days to shop for individual health insurance coverage.

*Businesses can also use these nine classes to offer different allowances to different employees. For example, a business can offer full-time employees $800 a month and part-time employees $400 a month.

Can employees’ families participate in the ICHRA?

Employees’ families can participate in the ICHRA as long as they’re covered under an individual health insurance policy.

Most often, this coverage comes from the employee’s individual health insurance policy.

Conclusion

The ICHRA is an exciting new option for businesses of all sizes interested in reimbursing employees tax-free for health care.

It’s also the most flexible HRA available since 2002. All businesses can offer it, and businesses can structure employee eligibility based on nine employee classes. As long as employees in these classes have individual health coverage, they can participate in the ICHRA.

To learn more about how the ICHRA works and how it will help businesses looking for an alternative health benefit, check out “What is the individual-coverage HRA (ICHRA)?

Questions? Let us know in the comments section below.

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