Earlier this year, the U.S. departments of Health and Human Services, Labor, and the Treasury, issued a final rule on regulation that has introduced a new option for employers offering health insurance.
To briefly summarize, employers of all sizes that do not offer a group coverage plan can now use pretax dollars to subsidize premiums for employees to select an individual plan within the health insurance market. You can read the full details of the ruling here.
The Individual Coverage HRA (ICHRA) has kicked into effect with the start of 2020 with the goal of increasing employer flexibility and employee choice of coverage.
With the introduction of any new regulation or major change, there are bound to be frequently asked questions. To help you better understand this new option, we’re sharing the top 5 frequently asked questions about ICHRA -- and their answers.
- What are the benefits of offering an ICHRA plan?
The purpose of ICHRAs is to allow employers to focus their time, energy, and money into organization-specific initiatives, rather than navigating the complex health insurance landscape. Additionally, there are a couple of key benefits to take note of:
For Employers:
- Payroll taxes are reduced because the reimbursements provided to employees is exempt from the employees’ taxable wages.
- It differentiates an employer’s benefit package from the crowd, making it easier to recruit and retain top talent.
- More healthcare choices for employees mean that they get the care they need, increasing productivity.
- More control over the budget for healthcare.
For Employees:
- Increased options for health insurance.
- Workers can shop the market for cost-effective plans that fit their needs.
- Employees can better care for themselves and their families, which results in less financial stress and fewer days of missed work.
- How does an ICHRA work?
ICHRAs work very similarly to traditional HRAs. Employers select an amount that they reimburse employees on a tax-exempt basis, based on an annual maximum set by the employer. Employees then use those funds to pay the premium of an applicable health coverage plan selected in the individual market. ICHRAs can be used for a large variety of plans, but do not apply to short-term coverage or coverage consisting only of dental or vision benefits. ICHRAs are held under the same requirements as traditional HRAs, so employers should consult that before enrolling employees in one.
- How do employer contributions work with an ICHRA?
ICHRAs offer tremendous flexibility when it comes to employer contributions. Employers can contribute the amount of their choosing. The only stipulation is that the same amount is offered to all employees within the same benefit class, regardless of position or seniority. The only exception to this is that the contribution amount may be increased for an individual based on the amount of dependents that individual has.
- Who is eligible to participate in an ICHRA?
Employers can offer an ICHRA to any employees, so long as they are not offered traditional group coverage as well. However, you can offer some classes of employees ICHRAs while offering others group coverage. For example, a few class distinctions could include:
- Full time vs. part time employees
- Employees working within certain geographical locations
- Seasonal/temporary employees vs. year-round employees
- Salaried vs. non-salaried workers
Please note that this is not an exhaustive list of employee classes and there are additional requirement for classes based on the size of your company.
- Is this only for small businesses?
ICHRAs are very beneficial for small businesses. It gives small businesses a more affordable way to offer healthcare to their workers, since smaller businesses tend to face high administration costs and struggle to offer suitable coverage. Some small businesses have had to stop offering coverage altogether, but ICHRA administration is a solution to that.
With that being said, this type of coverage is not just for small businesses. Small and mid-sized businesses are expected to reap the most benefits from the ICHRA ruling, but employers of all size can benefit from the tax benefits and flexibility ICHRAs offer.
Any new health insurance regulations can raise a lot of questions and leave employers wondering what the best choice is for them. If that’s you, don’t worry -- the experts at Clarity Benefit Solutions can help you weigh your options, including ICHRA, and help you provide the best plans for your organization and employees. Contact us with any questions about ICHRA or other healthcare plan options.
Sources:
https://www.irs.gov/pub/irs-utl/health_reimbursement_arrangements_faqs.pdf
