Individual Coverage HRAs are open to employers of all sizes and have significantly fewer restrictions overall than other forms of HRA do. However, there are still some rules and regulations that employers interested in implementing an ICHRA should keep in mind. More in-depth discussions of the rules surrounding affordability, reimbursement, and classes can be found in our other ICHRA articles.
There are no formal limits regarding reimbursement size for ICHRAs, so employers can reimburse as much or as little as they like provided certain fairness guidelines are met. Employers also have control over what kind of expenses are reimbursed and how reimbursements are structured – for example, they can choose whether they want to reimburse premiums and/or medical expenses, and whether they want all employees to receive the same reimbursement or whether reimbursement size should vary according to age, family size, and so forth.
ICHRA classes cannot be used to favor certain employees or as a “risk dump” for a group health plan. Each class must be based on a legitimate employment-related metric, such as hours worked or geographic location. They cannot be created for employees with specific health conditions and other non-job-related factors.
Additional rules apply when offering an ICHRA alongside a traditional group health plan. First, each class can only be offered the group health plan or the ICHRA – not both. Second, minimum size requirements will apply to classes for salaried and non-salaried employees, full- and part-time employees, geographic areas smaller than a state, and classes that combine one or more of these class types (the one exception being if one of these types is combined with a waiting period class). The size of these minimums will vary depending on the total number of employees.
Compliance with minimum class size is based on a “reasonable estimate” made at the beginning of the plan year. When designing your plan, document how you arrived at this estimate. If actual participation does not align with the minimums by the end of the year, changes will need to be made.
In order to satisfy the mandate for employee health coverage, the reimbursement offered through your ICHRA must make individual plans affordable to your employees. According to 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 9.78% of the employee’s household income”. Put in more useful terms, the HRA contribution must be greater than:
Cost of Cheapest Silver Plan – (0.0978 * Employee’s Household Income)
The IRS has provided suggestions for how employers can reasonably estimate the cost of a silver plan and an employee’s household income. To learn more, please see our article on affordability.
In order to participate in an ICHRA, employees will need to obtain a qualified individual health plan. In order for the plan to qualify, it must have no annual or lifetime limits and must cover preventive services with no cost sharing.
Open enrollment for such plans varies from state to state, but runs from November 1st through December 15th in most areas. However, there are also Special Enrollment Periods (SEPs), which allow health plans to be purchased at any time of year. SEPs can be triggered by major life events such as marriage, divorce, having children, and moving. The establishment of an ICHRA will also trigger an SEP for your employees, giving them 60 days to enroll in an individual health plan regardless of the time of year.
- Opting Out
Employees must be given a chance to opt out of the ICHRA at least once per year. If an employee does opt out, he or she will be unable to receive further reimbursements that year, though premium tax credits that may have previously been off limits because of the ICHRA’s affordability will now be available.
ICHRAs are compatible with all qualified individual major medical plans on and off the exchange as well as catastrophic health insurance, student health insurance, and Medicare. However, they do not work with everything. For example, an employee who is covered by an ICHRA will not be able to enroll in a group plan from their spouse’s employer. If you have a lot of employees who would want the option of taking their spouse’s coverage, a Qualified Small Employer HRA (QSEHRA) may be the better choice, as it will not impose this same kind of restriction. ICHRAs are also incompatible with short-term health plans, fixed indemnity plans, and other “alternative” forms of health coverage.