Individual Coverage Health Reimbursement Arrangements

The Departments  of Labor, Health and Human Services and the Treasury (collectively, the Departments) released new guidance on June 13, 2019 which permit a new type of Health Reimbursement Arrangement, referred to as an Individual Coverage Health Reimbursement Arrangement (ICHRA). 

ICHRAs allow employers of all sizes to reimburse employees for individual health insurance coverage and other out-of-pocket medical expenses.  Employees must be enrolled in an individual health insurance plan  (on-  or off-Exchange) or Medicare to be an eligible participant under the ICHRA. The Departments estimate 800,000 employers will offer ICHRAs to 11 million employees and their family members. 

The ICHRA must be offered under the same terms to all eligible employees; however, reimbursement limits may vary  based  an  age  or  the  number  of  dependents.  Employers  determine  the  maximum  reimbursement  limits. Employers will not be able to provide employees within the same classification a choice between a traditional group health plan and an ICHRA. It’s one or the other, but employers can offer one classification of employees a traditional group health plan and another classification of employees an ICHRA. Employers may make distinctions using the following classifications:

• Full-time employees
• Part-time employees
• Employees working in the same geographic location 
• Seasonal employees
• Employees in a unit of employees covered by a collective bargaining agreement
• Employees who have not satisfied a waiting period
• Non-resident aliens with no U.S. based income
• Salaried workers
• Non-salaried workers (such a hourly workers)
• Temporary employees of staffing firms
• Any group of employees formed by combining two or more of these classes

Applicable large employers (ALEs) can satisfy the Employer Mandate requirements by offering an ICHRA, but the new regulations do not address how to determine if the ICHRA constitutes affordable coverage. The Internal Revenue Service (IRS) intends to issue guidance around this matter soon.

While the ICHRA is receiving most of the attention, the new guidance also creates a new Excepted Benefit HRA. This new Excepted Benefit HRA has the following features:

• Annual contributions must be limited to $1,800 (indexed for inflation).
• The HRA must be offered in conjunction with a traditional group health plan, but employees need not be enrolled in the traditional group health plan.
• Reimbursements will be limited to premiums for COBRA, dental, vision and short-term medical plans.
• The HRA must be uniformly available to all similarly situated individuals. 

ICHRAs and the new Excepted Benefit HRAs can be established starting January 1, 2020. The final rule,  news release  and  FAQ can be accessed by clicking on the appropriate hyperlink.