New for 2020: Individual Coverage HRA (ICHRA)

As of January 1, 2020, employers can use an Individual Coverage HRA to help employees purchase individual health insurance coverage. With many employers facing difficult decisions due to the economic impact COVID-19, an ICHRA may be an appropriate alternative to a traditional employer sponsored health plan. Our experts are ready to help you understand and establish an ICHRA, and reduce your insurance costs.

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What is an ICHRA?

An Individual Coverage HRA is a Health Reimbursement Arrangement available after January 1, 2020 that allows employers of any size to reimburse employees for the cost of individual health insurance policies as well as medical, dental and vision expenses on a pre-tax basis.

Who should consider establishing an ICHRA?

Employers of all sizes.

Employers who do not offer any group medical insurance benefits.

Employers who offer certain employees group medical insurance coverage, but would like to offer other classes of employees different benefits, assuming they comply with ICHRA design guidelines.

Employers who would like to establish a defined contribution approach to providing for employee benefits.

Employers who have the following:

  • A significant number of part-time employees.
  • Office locations in various geographic areas.
  • Various entities (even if they are part of a controlled group).

Applicable Large Employers (ALE’s) who have difficulty meeting the employer mandate.

What are the employee insurance requirements?

Employees must be enrolled in INDIVIDUAL medical insurance (or Medicare) for each month the employee (or employee's family member) is covered by the Individual Coverage HRA. This may be individual health insurance offered on or off an Exchange.

Employees enrolled in a GROUP medical insurance plan or covered by a spouse's group health plan are not eligible to participate.

Can an Employer offer both an ICHRA and a group medical insurance plan?

Employers may offer an ICHRA and a traditional group health plan but may NOT offer the same employees a choice between the two.

Employers can create classes of employees around certain employment distinctions, such as the following:

  • Full-time employees
  • Part-time employees
  • Salaried employees
  • Hourly employees
  • Temporary employees working for a staffing firm
  • Employees in a waiting period
  • Employees hired after a certain date
  • Employees working in a different geographic location
  • Seasonal employees
  • Employees covered under a collective bargaining agreement
  • Foreign employees who work abroad
  • Any combination of the above classes

There are minimum class sizes, such as:

  • 10 employees, for an employer with fewer than 100 employees
  • 10% of the total number of employees, for an employer with 100-200 employees
  • 20 employees, for an employer with more than 200 employees

An ICHRA must offer the same coverage to employees within a permitted class.

What is the maximum employer contribution for an ICHRA?

There is no minimum contribution required, nor is there a maximum annual reimbursement limit.

Employers may increase the ICHRA amount for older workers and for employees with more dependents.

What expenses are reimbursable under an ICHRA?

Employers may design the plan to reimburse individual medical insurance premiums and 213(d) medical expenses, or limit to premiums only.

  • Eligible premiums include:
  • Individual health insurance premiums (on or off an Exchange)
  • Medicare Parts A, B, C and D premiums
  • Medicare Supplement premiums
  • Certain insured student health plans

How does an ICHRA operate?

The process is fairly easy to setup and our team will guide you through the process from start to finish. Some important steps include:

  • The employer selects an effective date. Plan years are not confined to the calendar year. Plan years may begin at any time during the year, but must not exceed 12 months in length. The first plan year, however, can be a short plan year consisting of less than 12 months.
  • The employer decides who is eligible to participate.
  • The employer decides whether only premiums or also eligible healthcare expenses will be reimbursed.
  • The employer determines how much to contribute per employee. This amount might vary if older or those with family members will receive a larger benefit amount. Please note that care must be taken where the plan design provides for a different reimbursement amount for older employees.
  • Employees obtain individual health insurance that fits their personal needs. Your My Benefit Advisor representative will assist your employees in making their purchasing decision.

For on-going support of the program, our solution includes administration for the following:

  • Process all reimbursement requests and issue payment via direct deposit or check for all plan participants.
  • Provide an employee and employer portal so that interested parties can obtain useful information.
  • Provide a mobile app for employees to view participant information.
  • Provide access to reports so that plan reimbursements can be monitored.

Tax Implications

  • Amounts paid to employees under an ICHRA are tax deductible by for-profit organizations.
  • Amounts received by employees under an ICHRA are tax exempt for federal income tax purposes.
  • A premium tax credit is not allowed for and individual’s Marketplace coverage if he/she is offered an ICHRA that is affordable.
  • If the ICHRA is not affordable, a Premium Tax Credit is allowed if the employee who is offered the coverage "opts out" of the ICHRA and the other Premium Tax Credit requirements are met.
  • Employees can pay for their portion of the medical insurance premium pre-tax through a Section 125 Plan if they acquire their coverage outside of an Exchange.