ICHRA Plans and Small Businesses

Blog, Employee Benefits, Group Insurance

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What is an ICHRA?

An ICHRA is an individual coverage health reimbursement arrangement. These are reimbursement arrangements integrated with individual market health insurance coverage. They’re created for employers who want to help their employees. Through an ICHRA, employers can reimburse employees’ individual medical insurance premiums. Not only their premiums but also other qualified health care expenses! 

What Makes These Plans Stand Out?

There are many reasons why employers are starting to choose these plans. One reason is the fact that ICHRA’s have no size restrictions. This means employers with companies of all sizes can choose to offer an ICHRA for employees. Another reason is the fact that an ICHRA offers unlimited contribution amounts. There are no annual contribution caps. Thirdly, is that ICHRA offers flexible class options for employers. They can choose to offer different classes of employee’s different things. A fourth reason would be that employers can establish an ICHRA at any time during the year. This creates a special enrollment period for employees. Employees can enroll in individual health insurance once the ICHRA is effective. They have 60 days before and 60 days after to do this. Finally, reimbursements for qualifying medical expenses are free of payroll taxes. Reimbursements are also free of income tax for employees who have minimum essential coverage (MEC).

How Does It Work?

  1. Employers set max allowances. This amount is the most the business will pay out through the arrangement.
  2. Employees spend money on healthcare. This includes individual health insurance, products, and services. ICHRA can reimburse expenses listed in IRS Publication 502.
  3.  Employees submit expenses and request reimbursement. They submit documentation that they incurred a healthcare-related expense. The documentation should include the amount, the date, and a description of the care.
  4. Employers review and approve the requests based on the eligibility of the expense.
  5. The employer provides the employee with a tax-free reimbursement.

Breaking Down ICHRA Details

Employee Classes and Requirements

There are 11 different classes employers can divide employees into. These divisions allow employers to offer different things to different employees. The classes include:

  • Full-time employees 
  • Part-time employees
  • Seasonal employees 
  • Employees covered by a collective bargaining agreement
  • Employees who have not satisfied a waiting period for coverage 
  • Salaried employees 
  • Non-salaried employees 
  • Temporary employees of staffing firms 
  • Foreign Employees with no US-based income 
  • Employees in the same geographic rating area
  • Any combination of two or more classes from above

There are some basic rules for employee classes that employers must follow. Employers with fewer than 100 employees must have at least 10 employees in a class. Employers with 100-200 employees must have at least 10 percent of total employees in a class. Employers with more than 200 employees must have at least 20 employees in a class. Employers aren’t required to use classes to structure the benefits they offer. They can be beneficial to employers, though. Classes can structure eligibility requirements. This means employers can offer different benefits and allowance amounts to different employees. It’s a fair way to give employees exactly what they need and not what’s “equal.”

Reimbursement

There are no limits to how much an employer can offer for reimbursement under an ICHRA. Employers get to choose what they want their ICHRA to reimburse. They can choose to reimburse premiums and medical expenses or only medical expenses. They can also choose how to structure that reimbursement. They can choose to vary reimbursements by family size. Individual market plans cost more for families. Because of this, employers can offer more allowance for larger families. They can also vary reimbursements by employee age. Individual plans sometimes cost more for older employees, so they can also give them more. They can also choose to vary by both family size and age! 

Affordability

An ICHRA can help employers satisfy the employer mandate. First, by offering an ICHRA to substantially all (generally 95%) of its full-time employees, the employer can avoid the larger of the two employer mandate penalties. Furthermore, if the ICHRA offered by an employer to substantially all full-time employees is “affordable,” then the employer can also avoid the second type of employer mandate penalty.

Subtract the monthly ICHRA allowance from the lowest-cost silver plan monthly premium. It should not exceed 9.12% of the employee’s household income for the month. If it doesn’t, it’s considered affordable for the employee!

Conditions

To integrate with individual health insurance coverage, an ICHRA must meet five conditions. The five conditions are as follows: 

  1. Employees and dependents have to enroll in individual market coverage. They have to enroll for each month they’re covered by an ICHRA. They have to have coverage before they’re able to receive reimbursement. 
  2. Employers can’t offer an ICHRA to a class of employees if they offer a traditional group health plan. Employers must offer a fair arrangement to all employees in a class. This means they’re offered the same amount and on the same terms and conditions.
  3. Participants can opt out of and waive future reimbursements from the ICHRA. They have this option once each plan year. They have to provide this before the first day of the plan year. The annual opt-out condition applies to all participants. This includes former employees who are eligible to enroll in the ICHRA.
  4. All employees participating must have an individual health insurance plan or Medicare. This applies to their dependents too. 
  5. Acceptance of an ICHRA may affect one’s premium tax credit eligibility. The final regulation includes a written notice intended to inform participants. It informs them of the arrangement’s potential effect on their ability to claim the PTC. 

Other Small Businesses are Implementing ICHRA- Should You Too?

Small businesses often find it hard to provide quality health insurance coverage. This is truer now than ever before. Let’s face reality! We live in unique times, and things everywhere are expensive. Healthcare is expensive. Offering health insurance is a huge selling factor for companies looking to hire. It’s also necessary for retaining good workers. Quality health insurance is a benefit that workers look for more than any other. Healthcare is a necessity. But quality health insurance usually comes with a high price tag. Small businesses may not be able to meet contribution or participation requirements. They may not be able to provide a traditional group health plan to their employees.

ICHRAs offer employers a unique way to offer those insurance benefits on their own terms. They’re able to set limits while not locking employees into specific coverage. Yes, ICHRA’s have rules. What sets them apart, though, is that they give employers options. That’s exactly why small businesses have been leaning toward these plans recently. The flexibility, control, and benefits offered through an ICHRA make them stand out. If you’re a small business owner looking for a health insurance solution, an ICHRA might be right for you! 

Contact us today to learn more. 

 

We do more than cover small businesses and individuals with the right insurance policies and benefit plans – what motivates our team is helping you save more so you can invest more in your team, family, and goals.

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