1. What is the ICHRA?
2. How does the ICHRA Work?
3. Helpful ICHRA Resources
4. Who is this guide for?
5. Background: Where did ICHRA come from??
6. ICHRA vs. Group Plans: Which is better?
7. ICHRA key benefits (vs. traditional group health plans)
8. Transfers employer responsibility for health risks
9. Personalized plan choices
10. Budget control
11. What are the Design Rules?
12. What are the Reimbursement Rules?
13. What are the Employee Classes?
14. What is the Affordability Rule?
15. What are the Opt-Out Provisions?
16. What Triggers a Special Enrollment Period (SEP)?
17. How do the Employee Classes Work?
18. Hiring and Retaining Full time employees
19. Having Employees in More than One State
20. Can I offer a group plan and an ICHRA together?
21. Minimum class size requirements
22. What is the Affordability Rule for Large Employers
23. How is ICHRA affordability calculated?
24. What is Affordable HRA Contributions?
25. Determining Employee Household Income
26. ICHRA Affordability Examples
27. How to Calculate “rate of pay” for income
28. “Affordability” and premium tax credits
29. ICHRA Requirements
30. Employee Requirements
31. ICHRA Administration
32. Reporting Requirements
33. COBRA and ERISA Guidelines
34. The Process for Setting up an ICHRA
35. Frequently Asked Questions
36. Getting Started
What is an Individual Coverage HRA (ICHRA)?
ICHRA is a game-changer for employers looking to provide health benefits to their employees. It represents a new, more modern model of employer-sponsored health insurance. ICHRA (we pronounce it “ick-rah”) stands for “Individual Coverage Health Reimbursement Arrangement” and is available for employers to start using in January 2020.
ICHRA is an evolution of another type of HRA, called a QSEHRA, that was created in 2017. Both allow employers to reimburse employees tax-free for individual health insurance, but ICHRA represents a “super-charged” version of QSEHRA with higher limits and greater design flexibility that will appeal to more employers.
How does ICHRA work?
As the name implies, ICHRA is based on reimbursing employees for insurance rather than buying it for them. At a high-level, the way ICHRA works is very simple:
- Employers design their plan, including defining which employees are eligible and establishing reimbursement limits
- Employees purchase the individual plans they want
- Employees submit claims for reimbursement
- Employers reimburse employees for valid claims
To stay compliant and keep employees and the IRS happy, there are some important rules and regulations we’ll get into later in this guide.
ICHRA has several advantages over traditional group plans that may be appealing to some employers. For instance, the reimbursement model (sometimes called a “defined contribution”) gives employers greater ability to control costs and provides employees with more options to choose from. This is very different from the current model of group insurance (sometimes called a “defined benefit”) where employers must choose a one-size-fits all plan for the group and employees are limited to options sponsored by the employer.
In addition, ICHRA takes the burden of managing a health plan and underlying health risks off of the employer. You or your clients won’t have to hassle with renewals, worry about participation rates, stress about what doctor networks your employees want, or be surprised by annual premium increases. Instead, with ICHRA employers can decide which employees qualify, set their monthly allowances, and get back to managing their business while employees get to choose the plans they want.
In this guide, we provide a summary overview of ICHRA’s benefits and basic requirements. We’ll share practical tips for evaluating if ICHRA would be a good fit for you or your client, ideas on how to design and optimize an ICHRA solution, and share important details on administration and compliance.
Who is this guide for?
We wrote this guide for employers, HR professionals, and benefit consultants interested in learning more about the Individual Coverage HRA.
After reading this guide, you’ll understand:
- What ICHRA is and where it originated
- Who will benefit the most from ICHRA
- How to design an ICHRA to fit a range of needs & budgets
- How the new classes work
- How to calculate the affordability of an ICHRA
- What is required in order to be eligible to use ICHRA
- What it takes to administer an ICHRA
We’re licensed health agents and experienced HRA practitioners, but we are not licensed tax professionals—please don’t treat our advice as such. Practical knowledge and links to relevant IRS regulations and legal resources are provided throughout this guide.
Background: Where did ICHRA come from?
Although it took awhile, congress finally addressed the problem. In December 2016, a hodge-podge bill called the 21st Century Cures Act was passed by a Republican Congress and signed by President Obama. The bill created the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which again makes it permissible for small employers to reimburse for individual insurance as long as the employers (and employees) met several strict guidelines.
With QSEHRA gaining traction, the Trump Administration issued additional guidance to expand the use of HRAs. In October 2018, the U.S. Departments of the Treasury, Health and Human Services (HHS), and Labor proposed new regulations to expand the usability of health reimbursement arrangements (HRAs). The rules were finalized in June 2019 and created two new types of HRAs: the Individual Coverage HRA and the Excepted Benefit HRA.
ICHRA vs. Group Plans: Which is better?
Is ICHRA better than a traditional group plan?
At a high-level, these new health reimbursement arrangements are a superior model compared to traditional employer-based plans. How it might be implemented for a particular client will depend on a lot of local market factors and what you or your client care most about when it comes to benefits.
The following chart provides a summary of where ICHRA wins and loses compared to a traditional group plan. We’ll then dive into a few key areas below.
Define your benefit budget and stick with it. No more surprise group increases year after year.
Individual plans generally have narrow, HMO or EPO based networks compared to group plans
Plan customization & flexibility
Design a plan that fits your team vs being locked into what an insurance company offers
On average, individual plans
are 10-20% more expensive
Take managing your employees’ health risk out of your business plan
Give your employees the ability to choose plans and doctors that work for them
Employees own their health plan and can take it with them if they change jobs.
Plan choice & Personalization
Employees select individual plans that fit their needs: doctors and RX coverage.
Individual insurance companies provide a superior experience (apps, concierge, etc)
Pro-Tip: When evaluating ICHRA vs a group plan for your firm or your client, it’s important to complete this analysis on a class-by-class basis. For example, a group plan may be better for full-time employees that want a large provider network, but ICHRA might be better for part-time employees that are network agnostic and value choice and portability.
ICHRA key benefits (vs. traditional group health plans)
- Transfers employer responsibility for health risks
- More personalized plan choices for employees
- Simpler and more flexible plan design options
- Greater budget control
- No participation concerns
Transfers employer responsibility for health risks
Do you or your clients want to play in the insurance risk management game? For any client that is over 50 employees (100 employees in NY, VT, CA & CO), whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. Self-insured clients will feel changes right away; fully-insured clients will feel it next year when their plan renews at a higher rate.
Personalized plan choices
ICHRA is much more personalized than employer-provided group plans and allows employees to choose their own plan.
Pro-Tip: Wondering about the individual market in your area? There are often more ICHRA-compatible options than what you can find on Healthcare.gov or your state exchange. Our enrollment software can help each employee optimize for his or her needs and find an ICHRA-compliant plan. This ensures your dollars are being spent efficiently and that your employees are buying plans they are happy with.
Simple and flexible design options
Traditional group plans come in all sorts of crazy shapes and sizes—a dizzying and confusing concoction of deductibles, coinsurance rates, employee vs. employer contributions, single versus family limits, etc. Then you get to hassle with census uploads and comparing quotes you have no control over. Employers are forced to guess on plan designs that’ll keep employees happy and fit the budget.
Pro-Tip: If a client is very budget conscious there are a few design options that will help them reign in costs while still providing a quality benefit. We provide some practical tips below, but make sure to reach out to our experienced design consultants. We’re happy to help!
ICHRA Design Rules
Design your success.
Benefits consultants who understand the nuances of design options will help their clients unlock savings and opportunities with ICHRA. Our design consultants can help discuss ideas.
There are no limits to how much an employer can offer for reimbursement under ICHRA. This is a big difference with QSEHRA which has rather restrictive limits. With ICHRA, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class.
In addition, employers can choose what they want their ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
- Qualified Medical Expenses Only
We’ll cover what counts as a “qualified premium” later when we discuss employee requirements. “Qualified medical expenses” are defined by the IRS in publication 502. If you’re familiar with Health Savings Accounts (HSAs), this is the same list. It includes things like doctor visits, co-pays, prescriptions, medical equipment, dental procedures, etc. Employers can choose to only reimburse certain types of medical expenses (ie, only prescriptions) as long as whatever elections are made are offered fairly to employees (there’s that “fair” thing again!)
Furthermore, employers can choose how to structure reimbursements to employees:
- Give all employees the same amount: This one is easy. For example, you could give all employees $200/mo.
- Vary reimbursements by family size: Since individual market plans cost more for families, employers can offer more for larger families. Unlike QSEHRA, it does not have to be tied to a reference plan but does have to be “reasonable”. For example, an employer could offer $200 for single employees, $300 for married employees, and $600 for employees with families. Or they could offer $100 for each additional dependent.
- Vary reimbursements by employee age: Similarly, since individual plans typically cost more for older employees, employers can elect to offer higher reimbursement amounts to older employees. Reimbursements must be structured using a 1:3 ratio from the youngest to the oldest employee. We strongly recommend setting it using the age range from 26 to 64. For example, you could give a 26 year old $100/mo and a 64 year old $300/mo. Dust off your algebra skills, as employees in between would get “in between” amounts. (y=mx+b linear regression style)
- Vary by both family size and age: Combo of the above to options. Math gets a little funky but isn’t too bad.
Employee Classes (at a glance)
The above reimbursement rules can be applied to all employees, or employers can choose to create different reimbursement rules for different types of employees, referred to as employee “classes”. For example, you could offer one set of reimbursement rules to full-time employees and a separate set of rules for part-time employees.
Classes cannot be used to discriminate or adversely shift health risk off of an existing group plan. However, they still provide incredible flexibility that can help employers really fine-tune their offering. We’ll cover classes in detail in the next section, but here’s a quick list of how you can segment employees:
ICHRA Employee Classes
What are the classes and how do they work?
Employee classes are part of the magic of ICHRA. Employers can design unique benefit solutions to fit their workforce. For example, employers could offer $500/mo to full-time employees and $200/mo to part-time employees.
To take it a step further, employers can also mix-and-match traditional group plans with ICHRA implementations. For example, you could offer employees in Colorado a traditional group plan and employees in New York an ICHRA.
The one-catch? Employee classes have to be based on legitimate job-based criteria like hours worked or geographic location.They cannot be used to discriminate against unhealthy employees (i.e., you can’t create a “diabetic” class, etc).
Here’s a summary table of the classes employers can use to design their plans:
|Full-Time?||A business can define whether this means 30 hours or 40 hours a
week, but keep in mind that to satisfy the employer mandate, it will need to be at least 30 hours a week.
|Part-Time?||Depending on the employer’s needs, this can be defined as either less than 30 or less than 40 hours a week.|
|Seasonal||Employees who are hired on a short-term basis or for a particular season.|
signifies a written agreement between an|
employer, employee, and their trade union on the basis of
employment, pay rate, work hours, and other working conditions.
|Waiting Period Class||
is standard practice|
when new employees come on board. Businesses can choose up to 90 days before an employee’s health benefits kick in.
|Rating Area Class?||This class can be broken up by employees located in different
geographic locations. It is generally thought of as
|Non-Resident Alien Class|
|Staffing Firm||Employees placed for temporary assignments.|
|Combination Classes||Employers can combine two or more of the above classes to create
a new class based on their needs.
In addition to multiple classes, employers can also offer an ICHRA to new employees while keeping current employees on a group plan. Essentially, an employer can “grandfather” in their group plan participants while offering an ICHRA to the new hires. The employer has to set an applicable date to being the delineation and then treat each case fairly. Employers can have multiple subclasses unless those classes are used to offer different ICHRA amounts.
Here are a few scenarios where utilizing ICHRA’s class structure would be helpful for you or your client:
Is your business concerned about hiring and retaining full-time employees but can’t afford benefits for part-time employees?
Then your benefits budget will be best spent on offering an ICHRA to full-time employees only. Employers can then set different allowance ratings for full-time single employees, full-time married employees, and full-time employees with families. Employers can exclude: part-time or seasonal.
Do you have employees working in more than one state?
Instead of trying to find a group plan that works in multiple states, offer employees an ICHRA and let employees purchase plans in their local markets that best fit their needs. Since insurance rates vary by geographic locations, you can set your classes up by state. For example, employees that live in California will get $600 and employees living in Texas will get $500. There is no limit to the number of classes you set up! Employers can set up varying rates for each state employees live in and then further increase allowances by marital status or age.
Can you offer a group plan and an ICHRA together? It depends.
Employers can offer an ICHRA and traditional group plan to employees as long as two conditions are met:
- Employees in each class are only offered one solution. For example, an employer cannot offer employees within a class an ICHRA and a group plan.
- Certain classes being offered reimbursement through an ICHRA must meet class size minimums. This is to avoid adverse risk shifting from employers trying to unload unhealthy risk off of their group plan and onto the individual market.
REMEMBER: Benefits have to be distributed fairly to employees that fall within each class, but each class can be broken down further by age and family size.
- Non-Salaried Employees
|Size of Employer||Class Size Minimum|
|less than 100 employees||10|
|100-200 employees||10% employees rounded down to whole number|
A few other class size notes:
- Combo Classes: Minimum class size applies to any combo-classes that include one of the classes listed above unless it’s a combo with the waiting-period class, in which case there is no restriction
- Rating Area Classes: Minimum class sizes only apply to rating areas smaller than a state. For example, if you or your client has one employee in a remote state, you could have a class of one without violating the rules. However, if you’re using a narrower rating area design (typically at the “county” level) then minimum class sizes apply.
Important Reminder: Minimum class sizes only apply when at least one class is being offered a traditional group plan. If an employer is offering multiple ICHRAs to different classes, there are no minimum class size restrictions.
Pro-Tip: What if you’re not sure how many employees will be in one class or another? Minimum class size is based on a reasonable estimate at the start of the plan year. Employers will want to document and demonstrate reasonable assumptions when designing their plan that they will meet minimum class sizes. If at the end of the year, actual participation in a class dipped below the minimum, the employer will want to make changes to their ICHRA to boost participation.
The Affordable Care Act (ACA) requires employers with more than 50 full-time equivalent (FTE) employees to provide health insurance to their employees. This is known as the “employer mandate.” Employers that don’t provide affordable insurance are subject to steep penalties.
ICHRA can satisfy the ACA’s employer mandate if the offer is “affordable.”
A cool feature of ICHRA is that it can satisfy the employer mandate. Employers that have been stuck using complicated group plans to meet the mandate have a new, much simpler option with ICHRA!
The catch? The ICHRA has to be “affordable” to meet the mandate and clear the employer of any penalties. This makes sense, as otherwise employers could offer $1/mo and escape the penalty which would be unfair to employees.
Pro-Tip: Owners of multiple companies will want to be aware of the difference between how affordability requirements are determined and minimum class size rules. While an employer’s requirement to satisfy the employer mandate is subject to common ownership rules (IRS Code 414(b), (c), (m) or (o), minimum class size requirements are based only on the common-law employer level.
How is ICHRA affordability calculated?
Note: The following section explains how to calculate affordability in detail. Just need to get some quick numbers? We’ve created an online ICHRA Affordability Calculator you can use and then skip this section. If you like to know the details, the read on!
Thankfully, the IRS has proposed a clear-as-mud description of affordability:
“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).”
(See IRS Notice 2018-88 and IRS Notice rp-19-29)
Dusting off our algebra skills, we get:
Affordable HRA Contribution > Lowest Cost Silver Plan – (9.83% * Employee Household Income)
This means that an affordable contribution must be greater than the lowest cost silver plan an employee can purchase minus 9.83% times the employee’s household income.
The two variables highlighted above that go into the affordability equation are not difficult to understand, but could be very hard for an employer to know. Thankfully, the IRS has proposed several safe harbors that employers can use to estimate these amounts to make an affordability determination.
Determining the Lowest Cost Silver Plan
The lowest cost silver plan an employee could purchase on the public marketplace is based on two factors: the employee’s age and where they live (rating area). It may be hard for employers to keep up with employees that move, have birthdays during the year, etc. The IRS also recognizes that many employers will want to make affordability decisions this year for their employees that will be purchasing plans next year.
To allow employers to reasonably estimate the lowest cost silver plan, the IRS is proposing the following safe harbors:
A few important notes:
- For affordability, it’s the lowest cost silver plan for the employee-only that matters. This is unfortunate because silver plans for families cost much more. This is a result of the “family loop hole” that Congress needs to fix!
- Calculations for premium tax credits (PTC) use the second lowest cost silver plan (SLCSP) while ICHRA affordability uses the lowest cost silver plan. The reason for this is around actuarial value and what the ACA’s employer mandate requires employers to provide to employees.
Determining Employee Household Income
It would not be reasonable for an employer offering an ICHRA to be able to estimate an employee’s household income—what if their spouse works? Or a dependent kid has a summer job?
To allow employers to estimate an employee’s household income, the IRS has proposed the following safe harbors:
|W-2 Wages||For salaried employees, employers can assume their
household income is equal to what the employer reports
annually in Box 1 of their W-2 form
|Rate of Pay||For hourly employees, employers can multiply the hourly
rate by 130 hours to estimate a monthly income
(regardless of how many hours the employee actually
|Federal Poverty Line (FPL)||Employers can assume an employee’s income to be equal
to the federal poverty level. (learn more about FPL)
Pro-Tip: Employers can use different safe harbors to manipulate the affordability threshold. However, safe harbors must be applied on a uniform basis to all employees. Our design consultants can help you and your client figure out the best methods to use.
ICHRA Affordability Example
As you’ve probably caught on from the section above, “affordability” will vary by which safe harbor an employer uses and may be different for each employee.
Let’s look at some examples to see how the safe harbors apply and how they can shift the affordability line.
Hourly Workers Example:
Let’s say Tom wants to provide an affordable ICHRA to his two employees, Steve and Stacy. Steve and Stacy both work at Tom’s office in Dallas, TX and are both paid $15/hr. Steve is 30 years old while Stacy is 60 years old.
To keep things simple, Tom will use the location safe harbor, and look at plans available in Dallas (even if Steve and Stacy are driving in from nearby suburbs). The lowest cost silver plan offered in Dallas in 2019 is the “Ambetter Balance Care 5” plan.
Steve’s premium is $365/mo. Stacy’s premium is $872/mo since she’s older. Those are the lowest cost silver plan numbers we can plug into our formula.
Next, we need to determine household incomes for Steve and Stacy. Because Tom doesn’t know much about their family life (he just met them!), he’s going to use either the “rate of pay” or “federal poverty level” safe harbor. [Note: The “W-2 Wages” safe harbor does not apply in this case since the employees are hourly and not salaried.]
With “rate of pay”, you assume employees work 130 hours a month regardless of how many hours they actually work. For both Steve and Stacy, this is $15/hr * 130 hours = $1,950.
With “federal poverty level” (FPL), look-up the FPL rate in your state here. For 2019, the FPL for one-person in Texas is $12,140/yr. To get that on a monthly basis, we’ll divide by 12 to get $1,012/mo.
We have all of the numbers we need for our formula now:
An Affordable ICHRA > Lowest Cost Silver Plan – (9.83% * Employee Household Income)
Calculated with “rate of pay” for income:
|Lowest Cost Silver Plan Premium||$365/mo||$872/mo|
|Minimum Affordable ICHRA||$173/mo||$680/mo|
Calculated with “federal poverty level” for income:
|Lowest Cost Silver Plan Premium||$365/mo||$872/mo|
|Minimum Affordable ICHRA||$265/mo||$772/mo|
A few important observations from this example:
- “Affordability” for Steve and Stacy varies by nearly $100/mo based on which safe harbor the employer, Tom, chooses to use
- What’s affordable for Steve and what’s affordable for Stacy is very different no matter which safe harbor Tom chooses
Pro-Tip: If you or your client are implementing an ICHRA, older employees are likely to experience sticker-shock with their premium prices because the individual market is age rated. We suggest varying reimbursement amounts by age to account for this and ensure a smooth transition. In the example above, if Steve and Stacy were the youngest and oldest employees respectively, instead of giving them each $400/mo, Tom could offer Stacy 3x the reimbursement he offers Steve. Tom could give Steve $200/mo and Stacy $600/mo which would cost the same and feel more “fair” to employees.
“Affordability” and premium tax credits
Large employers have to offer “affordable” ICHRAs if they want to satisfy the corporate mandate, but what about small employers (typically under 50 employees) not subject to the mandate?
Affordability is still important for small employers because it impacts the ability for employees to secure premium tax credits (PTC) (aka Obamacare subsidies) to help pay for their premiums:
- If an ICHRA is “affordable”, employees are not eligible for tax credits (PTC)
- If an ICHRA is “unaffordable”, employees can choose either the ICHRA or tax credits (PTC)
Recall from the Design Rules discussion above that employees must be allowed to “opt-out” of an ICHRA at least once a year. If an employer is offering an unaffordable ICHRA and an employee is eligible for a substantial tax credit (PTC) based on their income and family size, “opting out” can be a smart strategy (and good for the employer too). If you’re familiar with the “offset” approach from QSEHRA, this is a little different.
Here’s an example to illustrate how this works:
Meet Bob the employee. If Bob was shopping alone on the individual market, he’d qualify for a $300/mo premium tax credit (PTC) based on his income and family size. Bob’s employer wants to help out, and is going to contribute $200/mo through either an ICHRA or a QSEHRA. Here’s what that looks like:
|QSEHRA||“Affordable” ICHRA||“Unaffordable” ICHRA|
|Offsets||Not eligible for PTC||Employee Chooses|
So is the $200/mo Bob receiving “affordable” or “unaffordable”? The answer is it depends. Looking back at the hourly worker example above with Steve and Stacy, if Bob was just like Steve, $200/mo could be deemed affordable or unaffordable based on which income safe harbor Bob’s employer wants to use.
A few important notes:
- Large employers should use the safe harbors to make an “affordable” offer to avoid the employer mandate penalties (use our online ICHRA Affordability calculator to get quick results)
- However, employees will be able to test the affordability of their ICHRA on the public exchanges using their actual data, which may lead to differing results
- If employees can prove their ICHRA is actually unaffordable, they could “opt out” and claim tax credits (PTC)
We’re still waiting finalized guidance on Safe Harbors from the IRS, but we believe in this case, a large employer would still not be subject to penalties because they followed the rules based on the information they had to implement the safe harbors
Pro-Tip: Small employers may want to intentionally design an “unaffordable” ICHRA so that certain employees can take advantage of tax credits without costing the employer money. Our design consultants can help you or your client model out these scenarios.
|Employee location||Allowing ALEs to base HRA rates based on their primary
business location instead of every employee’s actual address.
|Calendar & non-calendar years||Provisions for HRA plan years that are different from
individual insurance plan years.
|Affordability||Allowing ALEs to estimate an employee’s household wages
using one of three different methods: Form W-2 Wages, Rate
of Pay, or Federal Poverty Line. There are more details on this
in the next section, so keep on reading!
ICHRA is a major overhaul of HRAs as we have known them up until this point. Compared to other HRAs, it is king in terms of flexibility. Three key elements make the new HRA very appealing.
No Size Restrictions
An organization can be a 5-person startup, a midsized 50-person team, or a 500-person corporation. ICHRA is a scalable benefit for all sizes of businesses.
Unlimited Contribution Amounts
There are no annual contribution caps. That means the sky’s the limit for this tax-friendly benefit.
Flexible Class Options
An employer can choose to treat different classes of employees differently based on different available class distinctions. Everyone does not have to be treated equally across the board.
In addition to this tremendous flexibility, the new HRA has pretty straight forward requirements for both employers and employees.
For employees to participate in ICHRA and receive reimbursements, they must be covered by a qualified individual health plan. For a plan to be considered “qualified,” it must meet two primary requirements:
- Have no annual or lifetime limits (PHS 2711)
- Cover preventive health services with no cost sharing (PHS 2713)
While employees will have many options on the individual market, unfortunately the rules do not allow for employees to consider getting on their spouse’s group plan (if offered by the spouse’s employer). This is a big bummer, especially since QSEHRA works great with employees on their spouse’s group plan.
In addition, we know there are a lot of enticing alternative plans on the market now based on short-term plans, fixed indemnity plans, and sharing ministries. Although these alternative plans may provide great coverage, they will not work with ICHRA.
Pro-Tip: If you or your client are interested in alternative plans or have many employees with access to spouse plans, you may want to consider QSEHRA as it can work with a wider variety of plan types. See our Guide on QSEHRA Reimbursements.
Pro-Tip: If employees are interested in using a Health Care Sharing Ministry (HCSM), alternative taxable arrangements can be offered alongside an ICHRA. Contact our design consultants to learn more.
What if employees don’t have individual insurance?
Good news! Employees that are newly eligible for an ICHRA will qualify for a Special Enrollment Period. Employees will have 60 days to complete enrollment for individual health insurance from the time they are offered the Individual Coverage HRA.
Pro-Tip: For clients using MMHIA Health as their ICHRA administrator, we will automatically generate the documents your employees need and can help them search for and enroll in a plan online.
Setting up and administering an ICHRA is not rocket science, but does require some important components:
- Legal Plan Documents (subject to ERISA)
- COBRA Administration (if not exempt)
- Process to substantiate employee claims
- Reimbursement mechanism
- Record-keeping and Tax Reporting
Can I administer my own ICHRA?
It’s a question we get asked a lot. While it’s possible, it’s definitely not something we’d recommend you or your client do for a few practical reasons:
- Employee Privacy – Leveraging an administrator provides a necessary layer of privacy. For reimbursements to be tax-free, employers have to substantiate that employees are using funds to pay for health insurance and medical expenses. However, having employees submit receipts directly creates a significant problem because information about employees’ medical expenses (including individual insurance premiums) is considered Protected Health Information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Employers asking for employee medical records is a HIPAA privacy violation.
- Record Keeping – Because the IRS requires small businesses to keep records up to 7 years, record keeping can be problematic when small paper receipts are concerned. An administrator will keep all digital records organized and secure on your behalf providing peace of mind.
- Changing Regulations – In recent years, healthcare policy consistently proves to be evolving. Therefore, as ICHRA evolves, an administrator will always be up-to-date on regulation changes.
We expect the IRS to release reporting guidance for ICHRA in November 2019 for plan year 2020. We’ll post updates and information here as we receive it.
COBRA and ERISA
Since the Individual Coverage HRA is considered a group health plan it is subject to ERISA and COBRA. All employers who set up an ICHRA will need to follow ERISA guidelines in regards to their plan documents and notice to employees.
Employers with 20 or more employees are required under COBRA to offer continuation of coverage to employees and their dependents when they lose coverage as the result of a qualifying event, such as an employee’s death, divorce, or job loss. Cobra is generally offered for 18 months but can be extended to up to 36 months for qualifying events.
Employers exempt from COBRA include:
- Less than 20 employees
- Church Plans
- Government Plans (state and local)
*Please check your state requirements for any state specific rules regarding COBRA.*
The Process for Setting up an ICHRA
Ready to design and launch your ICHRA? Over the last few years, MMHIA Health has helped over 1,000 clients setup and administer their own reimbursement programs. The process begins by finding the best administration partner and then walking through these 6 basic steps:
Step 1: Pick a start date
The first step is pretty easy—establish a start date! Many companies tend to think about benefits on a calendar year basis during open enrollment, but the awesome part about ICHRA is that it can start any time of year and will trigger a special enrollment period so your employees can find plans on the individual market outside of the open enrollment dates with ease.
Step 2: Design classes for eligible employees
One of the best parts about the Individual Coverage HRA is the ability to divide employees into eleven+ custom classes to determine what kind of benefit they receive (ICHRA to all employees, ICHRA to certain classes, no benefit to certain classes, or a traditional group benefit to certain classes). These classes include full time, part time, seasonal, salaried, non-salaried, employees working abroad, employees in a waiting period, employees working under a collective bargaining agreement, temporary employees in a staffing firm, employees in a specific geographic location, or a combination of any of those.
Step 3: Determine a budget and set allowances
Your next step is to determine how much you’ll give employees to reimburse them for premium costs and medical expenses. You can set a different monthly allowance for varying classes that you choose to include, and can even integrate this option with a traditional group plan if you choose. From there, you can further increase allowances based on age or number of dependents.
Step 4: Establish legal plan documents
The IRS and Department of Labor have a variety of rules to follow regarding HRAs. Failure to comply with the rules will result in penalties. Your legal plan documents, which will include a formal plan document and summary plan document, must include the ICHRA policies including monthly reimbursement amounts, class structure, claims processes, reimbursement eligibility, and information on HIPAA and other procedures involving privacy.
Step 5: Communicate your new benefit to employees
Since you are going through the work to set up the ICHRA employee benefit, you’ll want to make sure your employees know how to use it. Practical information to include: start date, annual HRA allowance, and how to obtain coverage including information regarding a special enrollment period and how premium tax credits interact with ICHRA. Our team at MMHIA Health can help onboard your team for you.
Step 6: Provide resources for employees to purchase individual health insurance
Choosing a health insurance plan on the individual market is a daunting task, especially if this is new territory for your employees. As an employer, you can provide your employees with tools and information to guide their decision making. Just beware, federal rules prohibit employers from being involved in the actual decision making when it comes to choosing a provider or policy. As the only HRA administrator that also offers shopping support on the individual market, MMHIA Health can provide the best on- and off-market options for your employees based on their needs, their budget, their preferred doctors and their prescriptions.
Frequently Asked Questions
The most common questions we hear
We hope this guide has been helpful for you! We want to remind you again that we are not licensed tax professionals, please don’t construe the information we’ve provided as official tax advice.
If you’re looking for more information, we recommend you check-out our Frequently Asked Questions (FAQ) database on ICHRA. As we receive more questions, we update this page.
Do you have a question we haven’t answered? Please reach out and let us know.