Choice and affordability in employee health benefits
How HRAs work
Health Reimbursement Arrangements are employer-funded accounts that reimburse employees for eligible medical expenses. No employee contributions are allowed. Since an HRA is funded only by the employer, the employer sets the rules of the plan.
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ACA restrictions on HRAs
At least that’s how it was until ObamaCare came along. The Affordable Care Act (ACA, 2010) put a number of restrictions on HRAs to align them with mandates in the new law. First, employers could no longer provide an HRA that reimbursed employees for medical expenses unless the employer first provided a group health plan. Then, the employer-sponsored group health plan had to meet the essential benefits and no lifetime limits requirements applied under the ACA. This put HRAs out of reach for most small employers, and persons working for these businesses lost health coverage entirely. Those under the large employer mandate (50+ employees) had to buy into the more expensive ACA cookie-cutter group health plans. Year after year, premium hikes cut into the company’s ability to grow and operate efficiently as well as their employees’ family budgets.
HRAs are now returning to their place as a beacon of health coverage choice and freedom with the Individual Coverage HRA, the new plan model announced by President Trump in June 2019. In fact, the ICHRA is the most flexible and affordable option yet in employer-sponsored health plans. In his announcement, President Trump said that the individual health coverage market will end up seeing a 50% increase, which will have the result of lowering individual health coverage premiums. Also, it is expected that 90% of employers implementing the new ICHRA will be companies with 20 or fewer employees.
Advantages for employers
Advantages for employees
The ICHRA works much the same as other HRAs, with the following important differences:
Reimburse premiums from open market or exchange
Most HRAs reimburse for eligible medical expenses that are not health plan premiums, with the exception of a policy that only covers excepted benefits (vision and dental). It is the employer’s responsibility to select, sponsor, and maintain a group health plan for employees with all the accompanying requirements of ERISA and COBRA. The ICHRA reimburses participating employees for individual coverage health plan premiums as well as other medical expenses. And, since the employee chooses, purchases, and maintains their health plan, ERISA and COBRA do not apply to an ICHRA.
Any number of employees
While the QSEHRA was a boon to the “qualified small employers” that fit within its “fewer than 50 employees” rule, the ICHRA is available to employers of any size.
No premium tax credit
ICHRAs are designed to reimburse employees for the purchase of individual coverage purchased on the open market or on an ACA exchange. However, employees buying health coverage on an exchange will not be eligible for a premium tax credit.
There is a provision within the ICHRA which allows an employee to opt out of reimbursements from the ICHRA at least once every plan year and at termination of employment. Opting out of the ICHRA does not mean the employee will be eligible for a premium tax credit as a result. The premium tax credit is only available when health coverage under the ICHRA offered by an employer under shared responsibility rules (ALEs with 50+ employees) is determined to be unaffordable according to ACA guidelines.
Traditional group health plans
An employer may not offer an ICHRA and a traditional group health plan (GHP) to employees within the same class. However, an employer may offer an ICHRA to one class of employees and a traditional GHP to another class.
Also, a traditional GHP may be grandfathered for current employees while all new employees as of a stated date (January 1, 2020, or later) are offered only the ICHRA.
Same Terms rule
An ICHRA must be offered on the same terms to all employees within a set class. This refers to the amount of the benefit, rollover rules, and other aspects of the ICHRA plan design for that employee class. An ICHRA allows businesses to set classes of employees according to the following statuses:
Exception for older workers and number of dependents
Higher benefit amounts are allowed within a class of employees for older workers and those
with more dependents.
Minimum class size rule
Employers offering only the ICHRA to workers within all employee classifications, the minimum class size
rule does not apply. However, when an employer offers a GHP to one or more class of employee and
an ICHRA to one or more other classes, the minimum class size rule applies to classes being offered the
ICHRA. The minimum class size ranges from 10 to 20 employees, based on total number of employees.
HIPPA privacy rules apply to an ICHRA:
Health FSA and HSA
Employers may continue to offer a health Flexible Spending Arrangement (FSA) and/or a Health Savings Account (HSA) to employees with an ICHRA.
The ICHRA qualifies as the “other group health plan coverage not limited to excepted benefits” necessary for health FSA participation.
An individual considered eligible to contribute to a Health Savings Account must be covered by a high deductible health plan (HDHP) and have no other coverage that will pay the HDHP deductible. An ICHRA may reimburse employees for HSA-eligible HDHP premiums. When an ICHRA is designed to reimburse individual health insurance coverage premiums and only medical expenses paid once the HDHP deductible is met (a post-deductible HRA), it does not disqualify an otherwise eligible individual. However, when the ICHRA is not limited to covering individual health premiums and post-deductible medical expenses but can also reimburse expenses that fall within the HDHP deductible, it is not HSA compatible. Since some employees may choose to purchase an HSA-compatible HDHP while others will choose non-HDHP individual health coverage, employers may offer both regular and post-deductible (HDHP) individual coverage HRAs to workers in an employee classification so long as it is otherwise offered on the same terms.
ICHRA, FSA, and HSA
When an employer offers the ICHRA with both the health FSA and HSA, the health FSA must also be set up as a post-deductible model for individuals with an HSA-compatible HDHP.
ICHRA Plan document requirement
All benefit plans must have a written plan document to qualify for tax-favored treatment of premium payments, contributions, and reimbursements. This is in the IRS rules for all HRAs, including the individual coverage model. The plan document states all of the information about the plan including how it works, amount of benefits, who sponsors the plan (employer), who administers the plan (sponsor or agent), and all of the legal information required by the IRS, DOL, and ACA. It is a fairly complex document, and that’s why we’re here. Our plan document package provides everything an employer needs to establish a tax-saving benefit plan in one convenient and affordable package for only $199, and that’s a one-time fee, not an annual subscription.
Plan design options
Define employee classes
The best way to begin is by defining the classes of employees that will be used in the ICHRA to further decide plan benefits. As explained in Same Terms (under ICHRA rules), classes can be set by several criteria and combinations of criteria. Will part-time employees be eligible to participate? What about seasonal or temporary workers? Will the company grandfather existing employees under the current traditional health plan while new hires are provided the ICHRA? Do participants with more dependents receive a higher benefit? Some elements of a plan can have a variance within the same class (a higher benefit for older workers is one example) while most other differences in benefit terms and amounts have to be assigned separate classes. All of this is covered in detail in the Same Terms rule section.
Decide on plan specifics
Once you have set up the employee classes, set the plan rules for them. The individual coverage HRA is the most flexible of all plan models. The employer provides all the funding, so the employer makes pretty much all the choices in plan design. Here are just a few of the options available to employers sponsoring an ICHRA (all can vary by employee classification group):
Amount of HRA benefit per year
With no minimum or maximum funding limit set by the rules, the HRA benefit amount is entirely up to the employer.
The annual HRA benefit can be made fully available to participants on the first day of the plan year, or credited on a monthly basis.
What happens to unused funds at the end of the year? It’s up to you.
Generally, an ICHRA will reimburse for all eligible medical expenses, but a company can set parameters so that the HRA only reimburses for the individual health coverage premium integrated with the plan, or for the premium plus only post-deductible expenses (for participants with Health Savings Accounts).
Determine plan year dates
Like all HRAs, individual coverage models run on a 12-month plan year. Just when that plan year begins and ends is up to the employer. Most plan years begin January 1 and end December 31; however, it can be any 12-month period. Some companies correlate the HRA plan year with their fiscal or tax year begin and end dates.
A short plan year is available for the first period. For example, a first plan year beginning March 1 and ending December 31, with all future plan years beginning January 1 and ending December 31. This can help an employer who wants a standard calendar plan year but is not able to begin a new ICHRA until later and similar circumstances.
ICHRA non-calendar plan years and open enrollment periods
Every year, Americans are permitted to make changes to individual coverage health plans during the health insurance open enrollment period that runs (usually) November 1 through December 15.
This is the only time of the year that health insurance can be purchased unless the participant or a covered dependent has a qualifying life event that opens a special enrollment period. For the first plan year of an ICHRA, this is not a problem because a special enrollment period exception is made for participants gaining access to an ICHRA for the first time. However, participants wanting to make a change in their individual coverage provider in later plan years will only be able to do so during the standard insurance open enrollment period. It is not required but may be helpful for employers on non-calendar plan years to formally remind employees of the open enrollment period prior to the January 1 that falls within the HRA plan year so that any wanting to change their individual health coverage will not miss the opportunity.
Cancel existing GHP
Companies that presently sponsor an employee group health plan and do not plan to grandfather it for existing employees must cancel the policy prior to the start of the ICHRA plan year (January 1, 2020, or after).
Ordering your plan document package
The ICHRA plan document package will be available for only $199 (electronic distribution) as soon as the rules allow that individual coverage products are released for sale.
No annual fee
Our ICHRA plan document packages come to you for a one-time fee. There's no required renewal or subscription fee. You only pay for an update when one is needed, and then at a reduced price.
You may choose either the standard electronic delivery service (.pdf) or a deluxe version that adds a printed binder for your convenience. Either way, the .pdf comes to you quickly, usually within the same business day.
Launch your Individual Coverage HRA
1. Sign the plan document in the two places indicated
Keep it on file and available in case of an IRS audit, the DOL requesting a copy, an employee asking
to view the document, and for administrative guidance. The ICHRA plan document is not filed with the
IRS, DOL, or any other government entity.
2. Distribute to every eligible employee, at least 90 days before the start of each plan year:
Prepare for success: employees
The success of your ICHRA will depend in part on its acceptance by the employees eligible to participate. Telling an employee that the company will reimburse them for their purchase of individual health coverage may not be enough to get a high rate of buy-in, especially for individuals who have not looked into buying health insurance before now. Buying individual health insurance is just as daunting (if not more so) than shopping for a group health plan. You can improve your chances of successful participation in the ICHRA helping employees with where to start and how to learn more by sharing just a little bit of information with them.
Written notice exchange information
The required written notice informs employees that they need to purchase individual health coverage from either the exchange or open market, and HHS promises additional resources to help individuals offered an ICHRA understand the concept of the ACA affordability provision and how that determines eligibility for a premium tax credit if they opt out of the ICHRA. This promised help will also address coverage dates, the annual enrollment period, and special enrollment periods. There is no promise in the rules about helping employees with making a decision on purchasing individual health coverage.
Company may not sponsor or endorse
Employers are forbidden by law to sponsor or endorse specific individual health coverage providers, agents, or plans. However, an employer may provide general information on how to find a provider or agent, or what to look for in an individual health coverage policy.
Employee election of coverage is for the duration of the plan year and may only be changed during the plan's annual open enrollment period unless the participant wishes to opt out of the ICHRA or qualifies for a special enrollment period.
The employer must offer, at least once per plan year, an opportunity for participants to opt out of the ICHRA.
Proof of coverage
Annual substantiation of coverage for the plan year
An individual coverage HRA must require proof of individual health coverage no later than the first day of the plan year. The employer may set any reasonable date that meets this rule.Also, when an employee or dependent becomes eligible after the first day of the plan year, initial substantiation of coverage is required within a reasonable timeframe as determined by the employer.
Ongoing substantiation for reimbursement requests
The employee must provide ongoing substantiation of individual health coverage with every request for reimbursement for the participant and their dependents throughout the plan year.
Acceptable types of substantiation
The IRS has provided model forms for both annual and ongoing substantiation. View the annual form here, and for the ongoing form, here. These forms and the written notice are customized in your ICHRA plan document package.
Reliance upon substantiation
An employer may rely upon the attestation provided by the participant unless there is knowledge on the part of the employer-HRA that the employee or dependent is not or will not be enrolled in individual health coverage (as stated on the substantiation form) for the month or applicable part of the plan year.
If that knowledge is obtained after the reimbursement is made, the ICHRA may no longer reimburse expenses on behalf of that individual for that period.
Special Enrollment Period for Individual Health Coverage
Individuals may only purchase individual health coverage policies on the open market or an exchange during the annual open enrollment period, usually November 1 through December 15 of the calendar year preceding the effective date of January 1 for those plans. There are circumstances that allow individuals a special enrollment period to make changes to individual health coverage outside of the standard period. These are:
Special enrollment period for new hires, ICHRA eligibility
ICHRA rules allow that individuals becoming eligible to participate in an ICHRA for the first time be allowed a special enrollment period for the plan year in which they are able to participate. This is for the first year only.
Special enrollment period for life events
A special enrollment period applies when a participant or covered dependent experiences a life event that can significantly impact their health coverage. These include a birth, death, divorce, and similar events. For more information, see Getting health coverage outside of open enrollment.
Integration of individual health coverage (non-standard)
Most participants in an ICHRA will purchase standard individual health coverage either on the open market or through an ACA exchange. All policies available on the exchange are qualifying health plans that cover essential health benefits and minimum value, and most policies offered on the open market are as well. There are policies that do not qualify for integration with an ICHRA. This may be because it is a group policy (as in a spouse's group plan) or it does not provide essential health benefits or minimum value (STLDI and others). Integration of non-standard individual health coverage types is explained here.
Coverage that can be integrated
Student health insurance
An HRA may be integrated with student health insurance coverage that meets requirements set in 45 CFR 147.145.
An individual coverage HRA may be integrated with Medicare Part A and B or Part C. The HRA may reimburse premiums for Medicare or Medigap insurance. Integration with Medicare is permitted whether or not the HRA is subject to MSP provisions.
Technically, TRICARE cannot be integrated with an ICHRA because it is a group plan. However, since it is addressed in the rules as follows, it is included in this section. An employee who is offered an individual coverage HRA and is enrolled in TRICARE must also be covered by an individual health policy (or Medicare). The individual health policy (or Medicare) will be integrated with the HRA (TRIARE cannot be integrated).
Coverage that may not be integrated
Group health insurance cannot be integrated with an individual coverage HRA. Only individual health coverage that provides essential health benefits and minimum value with no annual or lifetime limits may be integrated with an ICHRA. The following types of individual coverage health plans violate one or more of these rules and cannot be integrated with an individual coverage HRA:
The Departments intend to review this rule in the future.
Substantiation of expenses
As explained under Proof of Coverage, employees must submit annual and ongoing substantiation of coverage prior to the start of the plan year and with every request for reimbursement during the plan year. The individual coverage HRA must also require substantiation of expenses when reimbursement is requested, including for individual health insurance premiums. Acceptable substantiation will document the expense with a description of what was purchased, on whose behalf it was purchased (participant or covered dependent), its medical purpose, and the amount.
An ICHRA reimburses premiums for Medicare Part A, B, C, or D, and for so-called Medigap policies. While an individual coverage HRA can be limited to pay only premium expense, only non-premium expense, or only certain types of expense, it cannot be limited to paying “only expenses not covered by Medicare”.
Using a Section 125 POP to pay balance of premium
Just as employees expect to pay a part of the premium for group health insurance in an employer-sponsored Section 125 Cafeteria Plan, most employees will also contribute to the premium for individual health coverage in an ICHRA.
Unless the individual health coverage policy is purchased through an exchange, the employer may allow these payments to be made with pre-tax employee dollars through the company’s Section 125 plan.
The pre-tax salary reduction will be applied through regular payroll deductions, and the employer will send the amount for premium payment to the individual health coverage insurer. This is only available for amounts to cover the part of individual coverage premiums that will not be reimbursed by the HRA. A participant may not pay for the premium and then be reimbursed for that amount. For example, an employee buys a health insurance policy (not through an exchange) with an individual coverage premium of $800 per month. His ICHRA onthly benefit is $500. The employee pays $500 outright to the insurer and is reimbursed tax-free by the HRA. For the other $300, the employer processes a pre-tax salary deduction and forwards payment directly to the insurer on behalf of the employee.
When both spouses have an ICHRA
Should both spouses be offered an individual coverage HRA by their employer, the two HRAs may purchase the same individual coverage policy to be integrated with both HRAs.
Neither spouse may request HRA reimbursement for a portion of the premium or other medical expense that has already been reimbursed by other means.
Only ALEs (applicable large employers with 50 or more employees) are subject to Section 4980H for affordability compliance. An employee will only qualify for a premium tax credit on an exchange when the employer’s offer of coverage is unaffordable (or the employer is not an ALE). An ALE will owe a payment under 4980H(a) when at least one full-time employee is allowed a premium tax credit for the month.For more information on the shared responsibility payment an ALE might owe if coverage is deemed unaffordable, please refer to Employer Shared Responsibility Provisions at the IRS web site.
On Friday, June 14, 2019, President Donald J. Trump announced the expansion of Health Reimbursement Arrangements (HRA) to benefit small businesses and their employees. Keeping with promises made in Executive Order 13813 (October 2017) and during his campaign, the administration has worked tirelessly with the Departments of Health and Human Services, Labor, and Treasury (the Departments) to return consumer choice and affordability to employer-sponsored group health benefits with the new Individual Care HRA (ICHRA).
Individual Coverage HRA
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