ICHRA: New HRA Option Benefits Small to Medium Businesses
Take Advantage of ICHRA for your Employees’ Health Care & Medical Expense Reimbursements
By Chris Cooley of MyHRConcierge
In an important human resources update, on June 13, 2019, the Department of Labor, Health and Human Services issued its rules on a new alternative to traditional health insurance – Individual Coverage Health Reimbursement Accounts (ICHRA).
ICHRAs are health reimbursement accounts that allow employers to reimburse employees that are enrolled in individual health plans versus traditional group health insurance for medical care expenses. Employers may begin to offer these plans effective January 1, 2020.
Should Your Business Offer an ICHRA?
If applicable, your business should offer an Individual Coverage Health Reimbursement Account.
The ICHRA provides employers a way to offer health care benefits to employees that do not count toward their taxable wages. The option also provides smaller employers a way to offer insurance without the administrative burden of offering a traditional medical plan.
Additionally, this human resource solution allows employers to offer benefits as they compete for talented employees. The plans can be offered by companies of all sizes.
How the ICHRA Works
The ICHRA reimburses employees, including family members in defined instances, for medical expenses up to the amount the employer contributes each year.
The amount contributed each year is at the employer’s discretion. However, in order to participate in the ICHRA, the employee cannot be enrolled in a traditional medical plan.
The funds can be utilized to pay for individual health insurance that meets certain requirements that is obtained either through the Exchange or outside of the Exchange.
Employees may or may not roll over funds left over at the end of the year. The ability to roll over the left over funds at the end of a year is defined in the plan at the employer’s discretion.
“ICHRA provides smaller employers a way to offer insurance without the administrative burden of offering a traditional medical plan.”
The ICHRA and the ACA Employer Mandate
Employers with at least 50 full-time employees (including full-time equivalents) in the prior year are subject to the Affordable Care Act’s (ACA) Employer Mandate.
The Employer Mandate requires employers to offer minimum levels of affordable insurance to full-time employees.
The offering of the ICHRA is considered an offer under the Employer Mandate. This is as long as the employer contributes an amount that makes it affordable for the employee as defined by the ACA. The IRS is coming out with additional guidance on how the ICHRA affects the Employer Mandate soon.
Restrictions and Regulations
The ICHRA does come with restrictions and regulations on how it can be used.
- First, employers have the ability to offer both ICHRA and traditional health plans. However, they cannot be offered to the same classes of employees. An employee can only elect an ICHRA if they are not offered a traditional health plan.
- Employers have flexibility to offer the ICHRA to classes at their discretion. However, they must be consistent in how it is offered to employees in the same class. Classes can be defined by full-time employees, part-time employees and other defined classes. However, there are restrictions on how small a class can be. These restrictions are predicated on the employers number of employees.
- Employees can only be offered the ICHRA if they have an individual health policy. Therefore, the employer must have a process to ensure they participating employee is in fact enrolled in an individual policy or Medicare.
- Employees participating in the ICHRA are not allowed to make have a salary deduction to pay for the individual health policy through a cafeteria plan if it is obtained through the Exchange. However, if the policy is obtained outside of the Exchange, the employee could have a pre-tax salary deduction through cafeteria plan to pay for any premiums not covered by the employer.
How Do I Implement an ICHRA?
As employers you can start offering ICHRAs on January 1, 2020. If you elect to offer an ICHRA, you will need to make sure to offer the required notices for eligible participants.
You can start offering the ICHRAs in January 1, 2020. However, you must make the decision well in advance. This is because employees must enroll in individual health coverage during the open enrollment period. This period lasts from November 1, 2019 to December 15, 2019 (unless they have Medicare).
Finally, for more information on the Individual Coverage Health Reimbursement Account, download the “New Health Coverages Options for Employers and Employees” provided by the Department of Labor, Health and Human Services.
Get ICHRA Help
MyHRConcierge specializes in helping small to mid-sized businesses with human resources compliance and administration. Learn more about how MyHRC can help you stay compliant with changing labor rules by scheduling a consultation with us.
Chris Cooley is co-founder of MyHRConcierge and SMB Benefits Advisors. MyHRConcierge specializes in helping small to mid-sized businesses throughout the U.S. Chris can be reached at (855) 538-6947, ext. 108 or at email@example.com.