In early 2020, American businesses got an exciting new option for offering health coverage, thanks to new federal regulations: the ICHRA.
ICHRA, or Individual Coverage Health Reimbursement Arrangement, lets companies give employees a monthly allowance for health insurance premiums and other healthcare expenses, and it’s tax-free for both parties.
Instead of being forced to choose a one-size-doesn’t-actually-fit-all group health plan, ICHRA allows employers to design benefits that work for their workforce. By simply setting a stipend, employers have more control over plan costs and avoid the stress of picking and managing a group plan. Meanwhile, employees can choose a plan from the individual market that actually fits their lifestyle.
In lieu of buying insurance for employees, with ICHRA, businesses set a stipend that workers spend on insurance and healthcare costs. Employers setup a plan, defining which employees are eligible and the stipend amount. Employees then choose the individual plans they want and access their new stipend.
When an employer puts into place an ICHRA, employees can keep their insurance if they’re enrolled in a qualified individual health plan. Plans are deemed “qualified” if they don’t have any annual or lifetime payout limits and cover preventative health services with no cost sharing. FYI: with ICHRA, employees are not able to enroll in a spouse’s group plan, or in an individual short-term plan, fixed indemnity plan, or sharing ministry.
Employees who don’t already have health insurance will qualify for a Special Enrollment Period (SEP), and will have 60 days to enroll in a new individual plan.
Employers can offer different stipend amounts to different employee groups. These employee classes must be formed around job-based criteria, such as hours or an employee’s location, and can’t discriminate based on health conditions or to reduce risk from a group plan. For example, a business could offer a $500 reimbursement to full-time employees, and a $200 reimbursement to part-time employees. Employers can also offer an ICHRA to one class and a group plan to another.
Within an employee class, employers can vary stipends depending on employee age and family size, offering more for larger families and older employees, for instance. However, you can only make these divisions within an employee class.
Not all medical expenses are covered under ICHRA — check IRS rules for a complete list of what’s eligible. However, there’s no limit on the amount an employer can give, as long as it’s offered fairly to each employee class (see below for more on employee classes). Employers can also choose what they want their ICHRA to reimburse: insurance premiums only, insurance premiums and qualified medical expenses, or qualified medical expenses only. Qualified medical expenses, as defined by the IRS, include things like doctor visits, co-pays, prescriptions, dental procedures, etc.— similar to what can be covered by a Health Savings Account.
Most employers use a platform like Savvy to help simplify ICHRA administration, ensure compliance with IRS and Department of Labor rules, and give their employees the best possible benefits experience. Savvy helps employers with the following requirements for setting up and administering an ICHRA:
Since ICHRA is considered a group health plan, it’s subject to the Employee Retirement Income Security Act (ERISA), which requires employers to put together documentation to help employees understand their plan. When setting up an ICHRA, employers have to create a formal plan document and summary that include ICHRA policies such as monthly reimbursement amounts, class structure, claims processes, reimbursement eligibility, and information on HIPAA and other privacy procedures. Putting together these documents can get complicated, so it’s helpful to work with a third-party administrator who’s familiar with ERISA requirements.
Again, because the ICHRA is considered a group health plan, it’s also subject to COBRA. Under COBRA, companies with 20 or more employees are required to offer continuation of coverage to employees who lose it due to a qualifying event like a job loss or divorce. COBRA is generally offered for 18 months, but can be extended to 36 for qualifying events. A third-party administrator can help you navigate state-specific rules regarding COBRA.
For funds to be tax-free, employers have to confirm that eligible employees are using funds to pay for health insurance and medical expenses. However, asking employees to submit receipts directly is dicey because information about employee medical expenses (insurance premiums included) is considered Protected Health Information under HIPAA. Having an administrator oversee reimbursement can help avoid any HIPAA violations.
The IRS requires small businesses to keep records up to 7 years. An administrator can keep digital records organized and secured on your behalf, and assist with tax reporting.
ICHRA is an exciting new way to offer health insurance that’s also customizable for employers. Savvy ensures you meet all legal requirements and delivers to employees an unrivaled consumer health technology to help navigate healthcare and make personalized choices. Give us a call to learn more!