Employers of all shapes and sizes are reevaluating their options when it comes to employee benefit planning. Starting in 2020, employers have a new health savings tool at their disposal: the individual coverage health reimbursement arrangement (ICHRA).
Surveys suggest that the uncertainty caused by the pandemic has motivated more employers to explore the ICHRA option as a way to keep health costs fixed — while simultaneously giving employees more flexibility to make their own health insurance decisions.
Many employers are set to begin offering the ICHRA option as early as 2021, so advisors should brush up on the characteristics of these powerful health savings tools to help small business and individual clients alike address their health planning needs.
ICHRAs: The Basics
Under prior law, employers could not reimburse employees for individual health insurance premiums via the tax-preferred HRA structure because HRAs were deemed to fail certain prohibitions imposed by the ACA. In 2019, however, the DOL, Department of Health and Human Services (HHS) and Treasury changed course to develop a new set of rules that expanded employer options for providing coverage via ICHRAs starting in 2020.
The new rules would allow employers to reimburse premiums for individual health insurance coverage through ICHRAs if the several specific conditions are satisfied. First, all individuals enrolled in the ICHRA must actually enroll in individual coverage. If an individual ceases to be enrolled in individual coverage, the ICHRA must stop reimbursing their medical expenses (on a prospective basis only). Individuals who are still within the grace period with respect to paying their premiums for individual coverage are considered enrolled in individual coverage. Employers are permitted to rely upon employee certification as long as they don’t have knowledge to the contrary.
The employer can’t offer the ICHRA coverage option to one class of employees if it offers group health coverage to others in the same class of employees. Further, the HRA must be offered on the same terms to members of employees within a given class of employees where consistent definitions are used to determine employee classifications.
Permissible classes of employees include part-time employees, full-time employees, seasonal workers, hourly workers, salaried workers, new hires and workers employed or not employed through a temporary staffing agency.