Starting Jan. 1, 2020, employers can establish accounts for their employees to help them pay for individual health insurance policies they purchase, as well as for other health care expenses.
A new regulation expands on how health reimbursement accounts can be used. Currently, employers and their workers can contribute to these accounts, which can be used to reimburse workers for out-of-pocket medical expenses.
With these new Individual Coverage HRAs, employers can fund the account workers would use to pay for health insurance premiums for coverage that they secure on their own.
Up until this new regulation, such arrangements were prohibited by the Affordable Care Act under the threat of sizeable fines in excess of $36,000 per employee per year.
This rule is the result of legislation signed into law by President Obama in December 2016, which created the “qualified small employer health reimbursement arrangement (QSEHRA),” which would allow small employers to reimburse for individual insurance under strict guidelines.
The Trump administration was tasked with writing the regulations, which created the Individual Coverage HRA (ICHRA).
How it works
Under the new rule, if an employer is funding an ICHRA, the plan an employee chooses must be ACA-compliant, meaning it must include coverage for the 10 essential benefits with no lifetime or annual benefit maximums — and must adhere to the consumer protections built into the law.
Once the ICHRA is created, the employer will a set amount every month into the account on a pre-tax basis, which the employee can then use to buy or supplement their purchase of health insurance benefits in the individual market.
The law allows employers to set up as many as 11 different classes of employees for the purposes of distributing funds to ICHRAs. The employer can vary how much they give to each different group. For example, one class may get $600 a month per single employee with no dependents, while members of another class may receive $400 a month.
The allowable classes are:
Full-time employees — For the purposes of satisfying the employer mandate, that means a worker who averages 30 or more hours per week.
Part-time employees — Like the above, the employer can choose how to define what part-time is.
Seasonal employees — Workers hired for short-term positions, usually during particularly busy periods.
Temps who work for a staffing firm — These employees provide temporary services for the business, but are formally employed through a staffing firm.
Salaried employees — Staff who have a have a fixed annual salary and are not typically paid overtime.
Hourly employees — Staff who are paid on an hourly basis and can earn overtime.
Employees covered under a collective bargaining agreement — Employees who are members of a labor union that has a contract with the employer.
Employees in a waiting period — This class would include workers who were recently hired and are in their waiting period before they can receive health benefits (in many companies, this is 90 days).
Foreign employees who work abroad — These employees work outside of the U.S.
Employees in different locations, based on rating areas — These employees live outside the individual health insurance rating area of the business’s physical address.
A combination of two or more of the above — Businesses can also create additional classes by combining two or more of the above classes.
The rules for ICHRAs are as follows:
- Any employee covered by the ICHRA must be enrolled in health insurance coverage purchased in the individual market, and must verify that they have such coverage (as mentioned above, that coverage must be ACA-compliant);
- The employer may not offer the same class of workers both an ICHRA and a traditional group health plan;
- The employer must offer the ICHRA on the same terms to all employees in a class;
- Employees must be allowed to opt out of receiving an ICHRA;
- Employers must provide detailed information to employees on how the ICHRA works;
- Employers may not create a class of employees younger than 25, whom they might want to keep in their group plan because they’re healthier;
- A class cannot have less than 10 employees in companies with fewer than 100 workers. For employers with 100 to 200 employees, the minimum class size is 10% of the workforce, while for employers with 200 or more staff, the minimum size is 20 employees;
- While benefits must be distributed fairly to employees that fall within each class, each class can be broken down further by age and family size. That means employees with families can be offered a higher amount per month and rates can be scaled by age.