Important Healthcare Development: On June 13th, 2019, the U.S. Departments of Health and Human Services, Labor, and the Treasury announced the Individual Coverage Health Reimbursement Arrangement (ICHRA). ICHRA, at its core, is an expansion of the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
The beginning of affordable healthcare for small employers
QSEHRA was introduced in 2016 as a health insurance solution for companies with less than 50 full-time employees and no base medical plan, allowing them to reimburse employees for medical expenses. Small businesses find value in QSEHRA because it gives them the ability to set fixed, tax-free allowance amounts and allows employees to choose the coverage that works for their health needs.
The introduction of QSEHRA was seen as necessary for small business as they were less likely to offer employer-sponsored healthcare than their larger competitors. According to the Kaiser Family Foundation as of 2017, 30.2% of small businesses provided employer-sponsored healthcare compared to 96.6% of companies with more than 50 employees. QSEHRA leveled the playing field of the competitive landscape, allowing small businesses to recruit and retain employees in spite of the benefits larger companies could offer.
Employers of over 50 employees have been hoping for something similar to assist them in offering affordable healthcare. This is what ICHRA is for.
Overview of ICHRA
At a high level, there are 3 key differences between QSEHRA and ICHRA (Source Think Advisor). Characteristics of ICHRA include
- Available to employers of all sizes as long as they are able to create an ICHRA class with at least 10 employees.
- No employer contribution limits
- A class-based system with specific definitions for structuring the offering for employees
Now that we have an overview of ICHRA. Let’s learn how it works.
Meet ICHRA: The Expansion of QSEHRA
A tax-free reimbursement that employers can give to employees for individual insurance and medical expenses. Similar to QSEHRA, employees go to the health insurance marketplace, acquire insurance, and then receive reimbursement from their employer. ICHRA builds upon QSEHRA by providing employers of all sizes more options for structuring their health benefits plan or employee health plan.
But why is this a better option than group health plans?
- Allows employers to control their budget through customizable plan design
- Empowers employees through the ability to choose their own plan
- Allows tax-free reimbursements from premiums and qualified medical expenses
Designing Your ICHRA
There are 11 different classes for structuring an ICHRA which can be defined by the employer.
- Full-time employees - work at least a minimum of 30 hours a week
- Part-time employees - work less 30 or 40 hours a week
- Seasonal employees - employees hired on a short-term basis
- Employees covered by a collective bargaining agreement - have a written agreement between the business and trade union which outlines
- New employees - Employees who have not satisfied a waiting period
- Off-site employees - employees who work in the same geographic area (insurance rating area, state, or multi-state)
- Salaried employees - employees who are paid on a wage
- Non-salaried employees - employees who are paid on an hourly rate
- Non-Resident aliens with no US-based income - foreign employees who work abroad
- Temporary employees - employees from a staffing firm
- Custom classes - combine two or more to create a new class.
The requirements for employers and employees to set up an ICHRA.
- An employer can offer an employee the opportunity to be in an ICHRA class or traditional group plan, but not both.
- An employer of over 50 employees can offer an ICHRA if it meets “affordability” and Minimum Value (MV) as per IRS Notice 2018-88. This notice stipulates that an Employer’s contribution must be high enough so that an employee can afford the lowest cost silver plan from the market. In addition, it cannot exceed more than 9.86% of the employee’s income out-of-pocket.
Note: The IRS will be releasing calculations and benchmarks for large employers to determine what their minimum HRA contribution will have to be in order to satisfy the corporate mandate.
- Health coverage must meet Minimum Essential Coverage, specifically PHS 2711 & 2713
The QSEHRA and ICHRA Landscape
Overall, QSEHRA and ICHRA lessen the burden of managing employee healthcare for employers. Companies have to supervise many moving parts to ensure the success of the company, especially when it comes to managing costs. For this reason, companies want to conserve their time and financial resources in a way that yields effective results by controlling the cost of their healthcare and giving their employees the healthcare they deserve. It will be exciting to see the impact ICHRA will have on the growth of businesses of all sizes.