Have you heard about this cool new benefit design called ICHRA? Read on to learn the ins and outs of this benefit and get covered today!
Individual Coverage Health Reimbursement Arrangement (ICHRA) defined
ICHRA (pronounced “ick-rah”) is a cool new benefit design that has been available since January 2020. This type of HRA is a great option for employers looking to provide their employees benefits for the first time, or those looking for a better, simpler way to provide benefits. ICHRA is a new, more flexible, and personalized model of employer-sponsored health insurance.
ICHRA, while similar to QSEHRA, has many improved benefits. With both HRAs, employers reimburse employees for payments towards individual health insurance., However, ICHRA offers higher limits, greater flexibility, and no employer size constraints, allowing employers to offer insurance in more scenarios.
In the next 5-10 years, it’s expected that nearly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees.
ICHRA in Simple Terms
Instead of purchasing insurance for your employees, ICHRA reimburses employees for finding and purchasing their own insurance.
You design the ICHRA by identifying employee classes determining the reimbursement limits.
Your employees shop on W3ll for the individual and family ACA plans they want, then submit their proof of purchase for reimbursement.
You reimburse employees for valid claims including qualified plan premiums and medical expenses.
With ICHRA, you decide which employees qualify, set their monthly allowances, and get back to managing your business while employees choose the plans they want.
ICHRA Offers Flexibility
Employee classes are part of what makes ICHRA so great. You can design custom benefit solutions to fit your business needs. You do not need to offer every employee the same amount, rather you can divide your employees into classes and choose a dollar amount for each class.
Additionally, you can mix-and-match traditional group plans with ICHRA implementations. For example, you could offer employees in New York a traditional group plan and employees in Texas an ICHRA.
|Full-Time||Work at least 30 hours per week.|
|Part-Time||Work anything less than what is defined as full time (above).|
|Seasonal||Hired on short-term basis or for a particular season.|
|CBA||Have a written agreement between employer, employee and union (collective bargaining agreement).|
|Waiting Period||Just joined employer – can be up to 90 days.|
|Rating Area||Broken up by geographic location.|
|Non-resident aliens||no US-based income; including foreign employees who work abroad.|
|Temporary employees of staffing firms|
|Combination of two or more classes above based on their needs|
|Subject to Class Size Minimums if one class is getting a group plan|
While there is no minimum employer size, there are some instances where there is a minimum class size. The minimum number of employees to be included in a class depends on the size of the company based on the employee count on the first day of the plan year.
The minimum class sizes are as follows:
- 10 for companies with less than 100 employees
- 10% for companies with 100-200 employees
- 20 for companies with over 200 employees
Some things to consider:
- Employee classes must be based on legitimate job-based criteria like hours worked or geographic location. They cannot be used to discriminate against employees with health issues.
- Within each class, you can also choose to adjust the allowance amount by each employee’s age and family size.
- You can mix-and-match traditional group plans with ICHRA implementations. For example, you could offer employees in New York a traditional group plan and employees in Texas an ICHRA.
ICHRA Increases Recruitment and Retention
With an ICHRA, you can tell new and potential employees that they won’t have to switch health plans from what they had previously and can receive a monthly benefit to contribute to the cost, which may be the difference between attracting the top talent or not.
With an ICHRA:
- New and potential employees won’t have to switch health plans from what they had previously and can receive a monthly benefit to contribute to the cost.
- New employees can be offered an Individual Coverage HRA while grandfathering existing employees in a traditional group health plan. This is a great way to transition the workforce from a group plan to an individual coverage HRA.
- Out of state and remote employees don’t have to worry about group coverage covering them. They can choose the plan in their state that is right for them!
Control your Administrative Costs
ICHRA costs are fixed, meaning your risk to manage is eliminated, and your employees have the freedom to choose how to best spend their health allowance.
Since your employees will be entering into a larger risk pool by choosing a plan on the ACA, the premium may be lower. Couple this with a benefit that can be added on top of it, and you have gold standard health insurance for the price of bronze. As the employer, your costs will not rise year over year based on the risk of a relatively small pool of people.
If premium increases for group health plans have been a headache for you in the past, ICHRA is the answer. You set the allowable reimbursement rates, and the cost will never be able to exceed that number. The best part? If your employees don’t use all of their allowances, the money goes back in your pocket!
Does your business have more than 50 full-time equivalent (FTE) employees? If yes, the Affordable Care Act (ACA) requires to you to provide health insurance to your employees. This is known as the “employer mandate.” If you don’t provide affordable insurance, you are subject to large penalties.
Good news! ICHRA can satisfy the employer mandate. If you’ve been using complicated group plans to meet the mandate previously, this is a new, simplified option. To meet the mandate, the ICHRA must be “affordable.” This is a reasonable policy because otherwise, you could theoretically offer your employees $5/mo and escape the penalty, which wouldn’t be fair.
What makes an ICHRA affordable, you ask? Per the IRS:
“An ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 9.83% of the employee’s household income (rate applies to 2021).”
In math terms, the formula is:
Affordable HRA Contribution > Lowest Cost Silver Plan = (9.83% * Employee Household Income)
One of the biggest benefits of ICHRA is the limited amount of administrative oversight. Health benefit admin takes a lot of work, especially for smaller companies. Larger organizations typically have entire departments dedicated to it, and for medium-sized organizations, it is typically outsourced to a third-party company.
For smaller organizations, this is a huge benefit. You can now offer health benefits to compete with large businesses without having to take on the administration of group plans.
Group Coverage Vs. ICHRA
If you’re already offering benefits through a traditional group plan, ICHRA has some serious benefits that should be considered as you plan for 2021.
- ICRHA is easy to design and you set the budget and decide if it increases
- You are no longer financially responsible for health risks of their employees and there are no participation requirements
- Employees get to pick their own plan and coverage
Another Individual Coverage HRA’s selling point is that it has eleven different classes that divide employees into different benefit levels.
Did you know? There are often more ICHRA eligible options than what you can find on Healthcare.gov or state exchange. The W3ll Employee Shopping & Enrollment portal helps your employees find the right ICHRA-compliant plan for their individual needs.
QSEHRA Vs. ICHRA
While a QSEHRA is a health coverage subsidy plan designed for employees of businesses with fewer than 50 full-time employees, ICHRAs have no size restrictions. If offering a QSEHRA, you cannot also have a group insurance policy (including group health, dental, or vision insurance). The ICHRA, however, comes with no such requirements! This type of HRA can be paired with a group policy.
Additionally, QSEHRAs are limited to $5,450 for self-only employees and $10,700 for employees with a family in 2021, and businesses cannot give employees different allowance amounts based on criteria other than family status. ICHRAs have no allowance amounts. The QSEHRA does not prevent your employees from accessing premium tax credits however, to prevent double benefits, they must deduct their monthly HRA allowance from their calculated premium tax credits. With an ICHRA, your employees cannot collect premium tax credits and participate in the ICHRA. However, if the ICHRA allowance is considered unaffordable, employees may waive the HRA and collect the tax credits (if eligible).
ICHRA Design Rules
Another great benefit of ICHRA is the ability to design a unique plan just for your business. Something to keep in mind when looking at your design options is that while there is a lot of flexibility, your plans must be offered fairly to your “classes” of employees. Almost all ICHRAs rules and regulations were created to prevent discrimination.
In terms of reimbursement rules, there are no limits to how much you can offer under ICHRA – you can offer as much or as little as you’d like, if it is offered fairly to everyone. Additionally, you can choose what you’d like the ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
- Qualified Medical Expenses Only
You also have the power to choose the structure of reimbursements to your employees:
- Give the same amount to all employees
- Give amount based on family size
- Give amount based on age
- Vary amount by both family size and age
Your employees must be given the option to “opt-out” of receiving reimbursements through an ICHRA on an annual basis.
To participate in an ICHRA, your employees must have coverage via a qualified health plan. Outside of the annual Open Enrollment period, a qualifying life event is needed to trigger a Special Enrollment Period (SEP) to enroll in coverage. One of the exciting aspects of an ICHRA is that once an employer offers the plan to their employees, this creates a SEP for the employee, who then has 60 days to accept or decline the ICHRA and select the plan that works for them.
ICHRA, COBRA, and ERISA
ICHRA is considered a group health plan and is subject to ERISA and COBRA. If you set up an ICHRA, you must follow ERISA guidelines in your plan documents and notice to your employees.
Per the Department of Labor, COBRA requires any employer with 20 or more employees in the prior year to offer employees and their families the opportunity for a temporary extension of health coverage in certain instances where coverage under the plan would otherwise end.
Companies with less than 20 employees, plans sponsored by the federal government or by churches, and certain church-related organizations are not subject to COBRA regulations. If your business falls in one of these categories and you offer an ICHRA, you can do so without following COBRA requirements.
For state-specific rules around COBRA, we recommend that you check your state’s requirements.
ICHRA and Medicare
You may be wondering – how does ICHRA work with your Medicare-eligible employees? It’s not uncommon for employees of small businesses to choose Medicare coverage over the offered group health insurance plan because the benefits are better. Can ICHRA offer your Medicare-eligible employees assistance with their medical expenses?
In short, yes! If you can place all your Medicare-eligible employees into the same class, you can offer said class an ICHRA. However, you cannot offer any employees within this class a traditional group plan. Even if your employees choose not to participate in the group plan, just the fact that they had the option to choose between a group plan and Medicare makes them ineligible for an ICHRA.
Additionally, to qualify for an ICHRA, any of your employees who are eligible for Medicare need both Part A and Part B of Medicare in place, or Part C. Unfortunately, Part B alone does not qualify as minimum essential coverage.