If you’re like many American companies in 2021, you may be exploring different and more cost-effective options for offering employee health insurance. The costly group plans are losing favorability with more viable solutions now available. Perhaps you are ready to move forward with an Individual Coverage Health Reimbursement Arrangement (ICHRA) because you, like so many other organizations, find incredible value in its many benefits.
For starters, you may believe your company has found the answer to your benefits budgets. You likely enjoy the flexibility of setting up a platform that works best for your employees and your bottom line. And the tax advantages can be huge for businesses large and small. However, those advantages are only available for those ICHRA offerings that adhere to the affordability rules set forth by the IRS. And to help ensure your company remains compliant with these affordability benchmarks, we’ve put together an easy, yet comprehensive guide.
Affordability Rule Definitions
Before your organization can manage and maintain ICHRA affordability, you should first understand the rule definitions. You can then move forward with your plan and take the necessary steps to implement a strategy that follows through on affordability compliance. These definitions are outlined according to the IRS and are available to reference as you chart your ICHRA road map.
Purpose of the Affordability Rule
An ICHRA platform must be deemed affordable. The purpose behind this requirement is simple. Contributions and reimbursements, without the mandate, could effectively allow companies to randomly offer a bottom-dollar monthly amount to meet the reimbursement policies. But of course, in those scenarios, the benefits would no longer be affordable or viable for the employees. The ICHRA does not, however, impose minimum contributions. So, having the flexibility means finding that balance between what is affordable for both the company and the individual employee.
Employee Coverage Requirements
The ICHRA will operate as an account-based plan as long as staff members enroll in their own individual health insurance plans. These plans can be secured via the Marketplace, based on Medicare eligibility, or through a direct health insurance offering. Employers can’t offer both the ICHRA and a traditional group, workplace coverage option to the same individuals.
What Are the Penalties for Non-Compliance?
Should the IRS find your company ICHRA unaffordable at the employee level, there can be penalties. Applicable Large Employers (ALEs,) for example, could be on the hook for ACA fines. And once each year, an employee will be given the option to continue participating in the ICHRA or opt-out entirely, based on affordability.
While you might make quick work of determining an ICHRA affordability budget for your company, don’t forget to incorporate a process for affordability determination at the staff level. Here are a few tips to ensure you continue to offer an affordable ICHRA offering to your teams based on their individual situations. Meeting these guidelines will allow you to leverage the maximum benefits of the ICHRA platform.
How the IRS Defines Affordability
The IRS offers descriptions for what companies should use as a guide for affordability. The ICHRA is deemed affordable when the remaining amount an employee pays is less than 9.83% of that employee’s annual household income. After the team member purchases a low-cost silver plan, based on age and location, the remaining out-of-pocket expenses should be considered. The IRS does also recognize that most employers tend to address affordability in the following year and will need to juggle existing year birthdays or moves.
To determine affordability, you’ll need to know the household income of each employee. But, of course, since you can’t officially ask those types of questions due to privacy, the IRS offers what it calls Safe Harbors to help with your affordability calculations. Employers can use past W2 wages and rate of pay, based on 130 hours each month.
Federal Poverty Line
Affordability is also calculated using the Federal Poverty Line. A family or household of four individuals making $26,500 or less is considered living at or below the poverty line. These benchmarks apply to the 48 contiguous states, while Alaska and Hawaii have their own territory guidelines for poverty.
Understanding the Low-Cost Silver Plans & Options
Part of your affordability calculations will require a general understanding of the lowest-cost silver plans on the Marketplace. Silver plans are often considered as the “Goldilocks” of coverage options, with lower costs yet deeper coverage parameters than bronze plans. Here are the tools and tips you need to leverage your ICHRA’s affordability efforts based on those plans.
Determining the Low-Cost Silver Plans
ICHRA affordability is based on the low-cost, self-only silver plans available on the Marketplace. Again, it’s affordable only if these plans fall below that 9.83% household income benchmark. That equation might look something like this:
Affordable Reimbursement Contributions > Low-Cost Silver Marketplace Plan – (9.83% x Employee’s Household Income Total)
Monthly Premium Affordability
Like the household income questioning, it may be hard for employers to determine the ages and locations of their staff. The IRS offers additional safe harbors to help establish those low silver plans and manage the affordability of the monthly premiums. A company can use the work address as the employee’s residence and coordinate year ages, as known by the employer for the current year. The IRS also suggests companies can use data from the previous coverage year to calculate estimates for the current plan year.
The W3LL Advantage
One of the most successful ways your organization can control and manage the affordability of your ICHRA is to partner with the experts who can help. The W3LL professionals can help your company manage all compliance efforts from Minimum Essential Coverage and ICHRA Affordability. Having a partner to help you with ongoing affordability calculations, administration, and platform logistics will ensure your company will maximize the ICHRA benefits. And should those IRS-determined guidelines change, you’ll have a knowledgeable expert in your corner to make sure the goalposts shift accordingly.
If you need help structuring your ICHRA affordability efforts, contact us! And if the ICHRA concept is new to you, let W3LL provide a proper introduction to the countless benefits of the reimbursement platform. It can be the ideal solution to benefits budgets, flexibility, and employee-valued needs.
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