In October, regulatory agencies proposed new rules for Health Reimbursement Arrangements (HRAs) that would take effect in 2020. The proposed rules would allow HRAs to be integrated with individual health insurance plans, something which is generally prohibited under current regulations. These new types of HRAs are now being referred to as ICHRAs. The primary use of an ICHRA would be to reimburse employees for individual health insurance plans.
There was one big question that was left unanswered in the proposed rules: How could an employer who was subject to the Employer Mandate offer an ICHRA and avoid penalties? The Employer Mandate requires coverage to provide minimum value and be affordable to avoid the risk of penalties.
The Internal Revenue Service (IRS) has issued Notice 2018-88 as a follow up to the proposed rules. The Notice provides preliminary thoughts from the IRS on how employers could comply with the Employer Mandate when offering an ICHRA. The IRS is inviting comments on the content in the Notice.
In general, the Employer Mandate requires an employer to offer a health plan that charges an employee no more than 9.5% (adjusted for inflation) of their household income for coverage. With an ICHRA, the Notice indicates an employer could use the lowest-priced silver plan available on the Exchange as the benchmark plan when determining affordability. Coverage will be deemed affordable based on the premium for employeeonly coverage.
However, individual health insurance rates vary by age and geographic location, so this will create an administrative burden to employers. As a safe harbor, employers could use each employee’s worksite as the geographic location when determining the rate of the lowest-priced silver plan. Employers would still need to know the cost of the lowest-priced silver plan by age.
Employers with a calendar year ICHRA could base affordability on the lowest-priced silver plan available in the previous year. Employers with a non-calendar year ICHRA would have a plan that spreads over two years. The Notice indicates coverage that is affordable at the start of the plan year will be considered affordable for all months of the plan year even if some of those carry into a new calendar year.
As it relates to minimum value, ICHRAs that are affordable and meet the rules that apply to these arrangements, will be deemed to have provided minimum value for purposes of the Employer Mandate.
Stay tuned on the new ICHRA rules as they are still in a proposed format. We will see additional information or changes as comments are received and time progresses.
Illinois lawmakers have taken steps to limit the maximum duration of short-term medical plans (STM plans) to 180 days. Earlier this year, Gov. Bruce Rauner vetoed a bill that would apply this limitation, but Illinois lawmakers had enough votes to override that veto. We will be reaching out to our carriers for additional information and will provide more updates as they become available.