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How do Individual Coverage HRAs (ICHRAs) work?

For plan years beginning on or after Jan 1, 2020, Individual Coverage HRAs (ICHRAs) can be integrated with, and reimburse premiums for, individual health insurance coverage if certain conditions are met. Employers of any size can establish an ICHRA that reimburses the employee’s premiums for medical insurance purchased in the individual market, as well as other 213(d) medical expenses. An ICHRA must be offered on the same terms and conditions to all employees within a class, except that the amount may increase based on age (by up to three times the maximum dollar amount available to the youngest participant) or family size (i.e., number of dependents). Employees who become covered under an ICHRA midyear may receive the full annual benefit or a prorated amount. The method must be determined before the plan year and must be the same for all employees within an allowable classification. As an example, an employer could only create an “hourly” classification that is not offered the group health plan at all and only a reimbursement (because a class can only be offered an ICHRA or a group health plan, not both). Specifically, ICHRA classifications may only be based on the following groups of employees:

  • FT employees

  • PT employees

  • salaried employees

  • non-salaried employees

  • same rating area (for individual market premiums)

  • seasonal employees

  • collectively bargained employees

  • employees in a waiting period (not to exceed 90 days)

  • nonresident aliens with no US income

  • temp employees for an unrelated entity

  • combo of two or more permitted classes

The classes listed above in bold must meet the minimum size requirement if the employer offers a group health plan to one or more of the other classes. This means that the classifications have to be based on the allowable classifications above, and some have to meet a minimum class size for the class. Here are the minimum number of employees that have to be in a class that’s subject to the minimum-class-size requirement, based on employer size:

This number is determined before the beginning of each plan year, which is based on the number of employees reasonably expected to work on the first day of the plan year. Whether a class has the minimum required number of employees is based on the number of employees in the class who are offered the ICHRA as of the first day of the plan year, not the number who actually enroll in the ICHRA. The determination doesn’t change if the number of employees fluctuates during the plan year. In addition, the preamble to the regulations talks about how Medicare’s secondary payer (MSP) rules apply to ICHRAs. Employees in a class that is offered an ICHRA must be allowed to enroll in either individual, non-excepted benefit health coverage or Medicare. The agencies say that this will not violate the MSP rules, even if some employees in the class are eligible for or enrolled in Medicare. Also, reimbursement of Medicare or Medicare supplemental premiums by the ICHRA is not considered an impermissible financial incentive under the MSP rules. However, for employers subject to the MSP rules, the ICHRA may not limit reimbursement of medical expenses to expenses not covered by Medicare. Thus, an employer cannot make a class that consists of people waiving to take Medicare, as that’s not a permitted classification under these rules (or any other rules related to benefits, generally speaking). For applicable large employers (ALEs), ICHRAs can satisfy employer mandate requirements, as long as certain conditions are met. The rules confirm that ICHRAs are considered eligible employer-sponsored plans, so an ALE can count ICHRA offers toward the 95% threshold for avoiding penalty A. Lastly, there are substantiation requirements, employer notice obligations and other considerations under ERISA and COBRA when sponsoring an ICHRA, so it is important to work with a qualified vendor or TPA when looking to implement an ICHRA. Yes, it's complicated. We strongly recommend that any employer or broker looking into ICHRAs seriously use a trusted advisor in doing so. Let us know if you have any questions. Thanks for reading!!

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