Businesses that have struggled with wanting to provide an alternative to a group health plan for their employees will now have a new option to consider with an Individual Coverage Health Reimbursement Arrangement (ICHRA), which will be available beginning January 1, 2020. This benefit allows employers to reimburse employees tax-free for health insurance coverage bought on the individual market, thus allowing companies to provide benefits without having to offer a traditional group health plan.
The ICHRA expands an already existing HRA called the Qualified Small Employer HRA (QSEHRA), which is limited to companies with less than 50 employees and requires the same benefits to be made available to all employees, with set limits on reimbursement amounts.
The new ICHRA does not cap contributions and has greater flexibility in the design. Companies of all sizes may offer this benefit. Employers design the plan, by defining which employees are eligible and establishing reimbursement limits.
Some key points of the new HRA option:
Employers may offer either an ICHRA or a traditional group health plan but may not offer employees a choice between the two.
Employers may create classes of employees based on specific criteria to differentiate eligibility and allowance amounts (see below for class criteria).
An ICHRA must be offered on the same terms for all employees within a class of employees, with exceptions made based on age and number of dependents.
Employers must provide written notice of the ICHRA to employees, generally 90 days before the plan year begins.
Classes may be established based on the following criteria:
- Full-time employees
- Part-time employees
- Salaried workers
- Hourly workers
- Seasonal employees
- Employees covered by a collective bargaining agreement
- Temporary employees of a staffing firm
- Employees in a waiting period
- Employees who live in different locations, based on rating areas
- Foreign employees who work abroad
- A combination of two or more of the above
For those companies who offer a traditional group health plan to some employees and an ICHRA to other employees, minimum class sizes will apply to those offered the ICHRA as follows:
- 10 employees, for companies with fewer than 100 employees
- 10% of the total number of employees, for companies with 100-200 employees
- 20% of the total number of employees, for companies with more than 200 employees
Employers looking for added flexibility in their health benefits offerings may wish to consider this option.