An Individual Coverage HRA

ICHRA plans

An Individual Coverage HRA (ICHRA) is an employer-funded HRA that allows employers (of any size) to issue tax-free reimbursement for their employee’s individual health insurance (premiums and expenses).

ICHRA (available from Jan 2020) is an evolution or enhanced version of QSEHRA. It comes with higher limits and greater design flexibility.

This plan can easily be structured to fulfill the employer mandate under the Affordable Care Act of providing “affordable coverage” for employees (affordable level of reimbursement.). This makes it an alternative to traditional, employer-sponsored health insurance.

How does ICHRA work

ICHRA is primarily designed for an employer to reimburse employees for insurance rather than buying it for them. At a glance, the way ICHRA works is very simple:

1. Employer designs the ICHRA plan- This involves defining eligibility and reimbursement limits. Most employers will achieve this by dividing the employees in terms of class, or scale rates by family size and age. They will also decide on the form of reimbursement which can be in terms of premiums paid or expenses incurred.

1. Eligible Employees will then purchase the individual plans that suit them
2. After incurring medical expenses (either through payment of premiums, medical expenses, or Qualified medical expenses), Employees then submit claims for reimbursement.
3. Eligible employees are then reimbursed for valid claims through a paycheck.

 ICHRA administration

• The employer can engage a professional administrator to run the plan
• Alternatively, they can choose to administer their own ICHRA, though Not recommended

Why leverage a professional administrator?

This is informed by practical reasons:

1. Privacy Concerns –This provides an additional layer of privacy. It’s easier for an administrator to substantiate documentation being provided for reimbursement. Also, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) employees’ medical expenses are considered Protected Health Information (PHI). An employer asking an employee for these medical records might be violating HIPAA.
2. Record-Keeping – IRS requires small entities to keep records for up to 7 years. Small paper receipts worth 7 years will be a challenge for any entity. On the other hand, administrators have the ability to digitize, organize and secure this.
3. Changing Regulations – Healthcare policy is constantly evolving. Administrators have the means to keep up with the regulation changes.

ICHRA requirements

Plan Requirements

Since ICHRA is an employee benefit, the Employee Retirement Income Security Act (ERISA) requires the sponsor to develop a “summary plan description’’. This helps the beneficiaries understand the products on offer;

• Name of the ICHRA plan
• Company’s name, address, and employer identification number (EIN)
• Plan administration, and includes the name, address, and contact number of the plan administrator.
• Name and contact address of a person who can serve legal processes
• Eligibility requirements for participants should include definitions for each class
• Description of the plan’s benefits
• Description of circumstances that disqualifies an employee
• Funding of the plan
• The fiscal year date for the sponsoring company
• Procedures for making claims
• Required ERISA language as found in the act itself

Employer’s requirements

• The IRS requires employers to have at least one W2 employee to be eligible. Private businesses, governmental bodies, and religious organizations of any size are eligible; and there’s no maximum limit for size or reimbursement rate.
• Any entity that offers an HRA and is not already offering

a.) A QSEHRA or EBHRA and

b.) A traditional group plan and ICHRA to the same class of employees.

• Legal setup of the company e.g. C-corp and non-profit owners are eligible, while S-corp owners are ineligible.
• Employers need to have an EIN number to be eligible (including household employers).

Employee’s requirements

• The employee must have an ICHRA-compliant individual insurance plan to be eligible. For IRS to consider a plan “qualified,” it must:

1. 1. Have no annual or lifetime limits (PHS 2711)
   2. Cover preventive health services with no cost-sharing (PHS 2713)

• For eligibility, an employee needs to fall within the pre-designated classes as designed by the employer. He is also required to have individual insurance that is ICHRA compliant.
• Medicare (Part A and B, or Part C) is reimbursable through ICHRA
• Individuals are eligible for ICHRA if their spouse purchases a cover through the individual marketplace. The premium rate is eligible for reimbursement. However,the spouse’s group plan offered through their employer is not eligible.
• Employees who are eligible for Tricare will need to purchase a separate individual insurance plan to participate in ICHRA.
• P-MEC and limited medical plans are not eligible as they do not meet ACA guidelines (including no cost-sharing for preventive benefits and unlimited lifetime benefits).
• The plans listed below can be easily integrated with ICHRA.

1. 1. Medical plans procured on the exchange (Bronze, Silver, and Gold)
   2. Catastrophic Plans (limited to persons age 30 and below or must qualify for a hardship exemption
   3. Student Health Insurance can be integrated with ICHRA

ICHRA rules

These rules ensure an entity’s health care plans are equitable and not discriminatory:

• Employees in a class get the same level of reimbursement, although it’s allowed to vary upwards the benefit to older members or those who have dependents.
• ICHRA is not eligible for employees covered under the firm’s group health plan. However, it’s allowed to offer ICHRAs to one class (part-time workers) and group health plans to full-time employees. The only exception to this is that new employees can be eligible for ICHRA within the same class of employees who are already participating in a traditional group health plan.
• Class sizes must be larger than:

1. 1. 10 employees if the entity has fewer than 100 employees in total
   2. 10 percent if the entity has between 100 and 200 employees
   3. 20 employees if the entity has more than 200 employees

• ICHRA can be provided to some employees based on family status and classes.

The eligible classes are:

1. Full-time employees
2. Part-time employees
3. Seasonal employees
4. Employees covered under unions (collective bargaining agreements)
5. Employees under the waiting period
6. Salaried employees
7. Non-salaried employees
8. Temporary staffing firm employees
9. Nonresident aliens with no income in the United States
10. Employees in the same geographic area
11. Employees that fall in two or more of the above classes

ICHRA pros and cons

ICHRA Pros

Pros for Employees

• Customization and flexibility

It empowers employees by allowing them to design a plan that suits them vs being locking them into what’s offered by single insurance providing the company plans

• Having a flexible network

Different employees have different needs. ICHRA allows employees to choose plans and doctors that are best suited to them.

• Portability

Employees are the owners of the health plan and can take it when they switch jobs.

• Employee experience

 Pros for Employers

• Superior services

Individual insurance companies are known to provide superior experience especially when it comes to apps, concierge, etc.

• No Size Restrictions

It’s workable for startups, midsized teams, or huge corporations. ICHRA works for all sizes of businesses.

• Unlimited Contribution Amounts

No annual contribution limits. It’s even attractive considering it’s a tax-friendly benefit.

• Flexible Class Options

Employers get to choose the structure of reimbursement. There is the freedom to treat different classes of employees differently across different class distinctions e.g. Giving all employees the same amount, Varying reimbursements by family size, by employee age, or both employees’ family size and age.

• Reduces the cost of healthcare.

You can define your budget and be able to stick to it. It also ensures employees have “skin in the game” > This helps in guarding against the unpredictable cost hikes associated with group plans as cost parameters have already been defined and set.

• Reduces the burden associated with designing and managing a group health plan.

Workers get the opportunity to select the carrier and health plan that’s most suitable for their needs.

• Easily tailored for part-time and hourly employees.

This helps Attract this category of employees by providing ICHRA with flexible employer contributions.

• Tax advantages

Is ICHRA reported on W2

There are no W-2 reporting requirements for ICHRA. Employers do not need to report this non-taxable benefit on eligible employees’ W-2s as reimbursements are free of payroll taxes for both the sponsors and their beneficiaries (beneficiaries with minimum essential coverage  will not be assessed on this benefit)

• Meet employer mandate requirements. ICHRA if structured properly it goes a long way in helping employers comply with the Affordable Care Act requirements.

ICHRA Cons

• Tax credits

If all employees are on subsidized health insurance, ICHRA can greatly reduce the opportunity for the employees to receive tax credits.

• Weak Insurance Markets

If the employer is located in a place where the individual health insurance market is weak, ICHRA will not be the best option as the success of ICHRA is hugely pegged on a competitive and innovative individual health insurance market.

• Provider Networks

ICHRA in general tends to have narrow, HMO or EPO-based networks when compared to group plans

• Premium pricing

ICHRA in general tends to have narrow, HMO or EPO-based networks when compared to group plans. on average, ICHRAs tend to be priced 10-20% higher when compared with traditional group plans

• New trend

Employers are yet to appreciate this product. Nobody fully understands its aspects.

 ICHRA vs QSEHRA

Bottom line

Newly eligible employees do qualify for a Special Enrollment Period of 60 days to source for their individual health insurance.

Note that there are many alternative plans on the market based on short-term plans, fixed indemnity plans, and sharing ministries. In as much as these alternatives may provide superb coverage, they will not work with an ICHRA.