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An ICHRA allows employers to provide tax-free reimbursements to employees for insurance coverage they obtain on their own in the individual major medical market or through Medicare. Out-of-pocket medical expenses may also be reimbursed.
ICHRAs may be offered for plan years beginning on or after January 1, 2020.
Employees (and any covered dependents) must have individual major medical coverage or Medicare, which includes grandfathered individual plans, grandmothered individual plans, individual plans sold on and off the Exchange, insured student health plans, coverage through Medicare Parts A, B, C, or D and Medicare Supplement health plans.
Employees with short-term medical plans, coverage through another employer’s group health plan or coverage through a health care sharing ministry are not eligible for reimbursements through an ICHRA.
Employers determine the maximum reimbursement limits; however, the ICHRA must be offered under the same terms to all eligible employees. Reimbursement limits may only vary based on the age and/or family size of employees. If using age-based variations, the maximum reimbursement limit cannot exceed the 3:1 ratio allowed for individual market premium differences. Employers may also optionally permit carryover of unused funds to the following plan year.
The employer may determine if the full annual reimbursement is to be made available or if a pro-rated amount is to be made available, but whatever option the employer selects, it should be applied consistently.
No. Employers cannot offer employees a choice between a traditional group health plan and an ICHRA; however, employers can offer one class of employees a traditional group health plan and another class of employees an ICHRA. The permissible classes include:
Yes. A minimum class size rule applies to the ICHRA if an employer offers a traditional group health plan to some employees and an ICHRA to other employees based on:
The minimum class size is:
The class size is determined by the number of employees who are offered access to the ICHRA. Class size is also determined at the common law employer size (not the controlled group size).
Changes to definitions of classes during the plan year are prohibited. Also, through a new hire rule, employers can offer new employees an ICHRA, while grandfathering existing employees into a traditional group health plan.
Yes. Employees who are covered by an ICHRA cannot receive subsidies through an Exchange or Marketplace plan. If, however, the employee waives coverage under the ICHRA, he/she may still be eligible for subsidies to the extent the ICHRA does not provide the employee with access to affordable coverage as defined by the Affordable Care Act (ACA).
The ICHRA is considered minimum essential coverage and offering an ICHRA to at least 95% of full-time employees will meet the offer requirements of the Employer Mandate.
Coverage will be considered affordable to an employee if the lowest-priced Silver plan available on the Exchange or Marketplace is no more than 9.5% (adjusted for inflation) of the employee’s household income after considering the ICHRA. Employers are permitted to use the lowest-priced Silver plan based on the employee’s work location rather than their residential address when determining if coverage is affordable. Additionally, because the affordability of coverage is being tied to a Silver plan, an offer of coverage with minimum value will have deemed to have been made.
The Internal Revenue Service (IRS) has expressed that more guidance may be issued to address the interaction between the Employer Mandate and ICHRAs.
Yes. A written notice must be provided to employees which includes general information about the ICHRA, including the reimbursement limits and potential impact to eligibility for subsidies on the Exchange or Marketplace. The Department of Labor (DOL) has provided a model notice which employers can use. It generally must be provided 90 days prior to the start of a plan year or by the first day of coverage for new hires. However, for the first plan year, it can be provided to all employees by the first day of the plan year.
Employers must have employees and covered family members attest each year to having individual major medical coverage or Medicare. The DOL has provided a model attestation form that can be used. Additionally, with every request for reimbursement, an attestation must be obtained which confirms that individual major medical coverage or Medicare coverage is still in place.
It depends. On-Exchange plans may not be paid pre-tax through a Cafeteria Plan; however, off-Exchange plans and Medicare plans can be paid pre-tax through a Cafeteria Plan.
Yes. A special enrollment period will apply in the individual major medical market. It starts 60 days before the effective date of the ICHRA and ends 60 days after the effective date. Additionally, a special enrollment period will apply at each renewal for employees eligible to participate in the ICHRA.
Yes, unless the ICHRA is offered by a church or government agency who is exempt from ERISA. The individual major medical plans and Medicare plans won’t be subject to ERISA provided:
Yes. The ICHRA is subject to COBRA, but the individual major medical plans and Medicare coverage obtained by employees are not subject to COBRA. However, COBRA does not apply if an employee loses their individual major medical coverage or Medicare coverage during the year (for example, due to non-premium payment). Former employees who continue coverage under the ICHRA by virtue of COBRA must continue to be covered by an individual major medical plan or Medicare plan.
Yes. SBCs are required to be distributed at the appropriate times when an employer offers an ICHRA.
Yes. Employees can enroll in an FSA and ICHRA.
ICHRAs that reimburse out-of-pocket medical expenses will eliminate HSA eligibility. ICHRAs that limit reimbursements to insurance premiums will preserve HSA eligibility. Employers may offer the same class of employees the choice between an ICHRA that only reimburses premiums and an ICHRA that reimburses premiums and out-of-pocket medical expenses, and this will not violate the same terms requirement as referenced in Q&A #4.
Yes. Ancillary plans can be offered in addition to the ICHRA. The only restriction is that a traditional group health plan and an ICHRA cannot be offered to the same class of employees.
The table below outlines some key differences between QSEHRAs and ICHRAs:
Employers of any size may offer an ICHRA.
Employers with fewer than 50 full-time equivalent employees may offer a QSEHRA.
Maximum Reimbursement Limits
Maximum reimbursement limits are determined by the employer.
$5,150 for single coverage and $10,450 for family coverage (based on 2019 limits).
Eligible employees must have individual major medical coverage or Medicare.
Eligible employees must have minimum essential coverage.
ICHRAs are subject to COBRA for employers with 20 or more employees.
QSEHRAs are not subject to COBRA.
Rights to Waive Coverage
Employees may waive coverage under an ICHRA.
Employees may not waive coverage under a QSEHRA.
Former employees may participate in an ICHRA assuming they continue to have individual major medical coverage or Medicare.
Former employees may not participate in the QSEHRA.
Nothing in the final rules changes the application of the MSP provisions. The Department of Health and Human Services (HHS) intends to issue further guidance clarifying the primary versus secondary payer responsibility of ICHRAs for employers subject to the MSP provisions.
There are no new reporting requirements that were created for ICHRAs; however, the rules do not change any reporting requirements that apply today for group health plans, and an ICHRA is considered to be a group health plan. This may include reporting requirements under the ACA, ERISA, the Code and/or the SSA.
EBHRAs are another type of tax-free reimbursement arrangement that employers can begin offering for plan years on or after January 1, 2020. EBHRAs have the following requirements:
No. An employer cannot offer the same employee an ICHRA and EBHRA; however, an employer may offer a traditional group health plan and an EBHRA to the same employee. The employee may participate on the EBHRA even if they waive coverage under a traditional group health plan.
The final rule, news release and FAQ can be accessed by clicking on the appropriate hyperlink.
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