Individual Coverage HRAs promote healthcare choice
November 20, 2019
BY Todd Kuehn
800-422-4661, Ext 8875
Individual Coverage HRAs promote healthcare choice and competition and
make it easier to offer valued benefit
Beginning January 1, 2020 employers can offer an Individual Coverage Health Reimbursement Arrangement (ICHRA) to employees to reimburse individual insurance and out-of-pocket medical expenses. This makes it easier for employers to offer an employee-valued benefit without facing the complexity posed by its predecessor, the Qualified Small Employer HRA (QSEHRA). The Departments of the Treasury, Labor, and Health and Human Services introduced ICHRAs in October 2018; the finalized ruling came out in June 2019.
One of the biggest challenges that small employers face is attracting and retaining employees. Beginning January 1, 2020, employers who have multiple employees can offer an Individual Coverage Health Reimbursement Arrangement (ICHRA) to employees to reimburse individual insurance premiums and out-of pocket medical expenses. These changes will make it easier for employers to provide a valuable benefit. This policy is a result of Executive Order 13813. This order was issued by President Trump in 2017 to expand the availability and use of Health Reimbursement Arrangements (HRAs) and promote healthcare choice and competition.
HRAs are employer-sponsored and -funded health plans used to reimburse employees for medical expenses on a tax-free basis. It’s estimated this expansion of HRAs will benefit approximately 800,000 employers. This number includes small businesses, which comprise more than 11 million employees and family members,
including an estimated 800,000 Americans who were previously uninsured.
According to HHS Secretary Alex Azar, “President Trump has promised Americans that he will put them in control of their healthcare, and this expansion of health reimbursement arrangements will help deliver on that promise by providing Americans with more options that better meet their needs.”
Some highlights of the legislation and ICHRA features:
• Any employer can offer an ICHRA. There are no size restrictions and no minimum participation requirements.
• Employees can use employer-funded ICHRAs to buy individual insurance coverage, including insurance purchased on the public exchange.
• Offering an ICHRA counts as an offer of coverage under the employer mandate.
• Employers who sponsor Group insurance may also offer an ICHRA to employees who have elected not to participate in the Group insurance plan.
• Multiple classes are allowed. This gives employers flexibility to offer different amounts based on such criteria as full- versus part-time employment, salaried versus hourly employees, geographic location, and more.
• HRAs are solely funded by an employer; they are employer-sponsored and reimbursed benefits.
• An employer who sponsors an ICHRA plan will be able to enhance this offering with additional benefits—such as Individual insurance premiums, healthcare FSA, dependent care, and Health Savings Account on a pre-tax basis.
• HRAs are not pre-funded and must be based on a calendar year.
ICHRAs will allow small employers to overcome many of the limitations of previous HRA offerings as described below:
IRS Notice 2013-54, issued in September 2013, limited the ability of small business owners to utilize standalone HRAs. Prior to this guidance, many had used HRAs to reimburse their employees for certain medical expenses using pre-tax dollars. As a result of IRS Notice 2013-54, a company with more than one eligible employee could no longer receive a tax advantage through an HRA unless it sponsored Group insurance (an
expense that’s beyond many small companies’ reach) —or offered a Limited Purpose HRA (which can only provide coverage for dental, orthodontia, vision and long-term care).
In 2016, the Cures Act established the Qualified Small Employer HRA (QSEHRA). This legislation overturned guidance issued in IRS Notice 2013-54 and once again allowed employers with fewer than 50 employees (companies not subject to the ACA’s Employer Mandate) to utilize HRAs as a pre-tax health and welfare benefit. The QSEHRA has many restrictions and requirements that the ICHRA does not. For example, a QSEHRA is only available to employers with fewer than 50 eligible employees and employer ontributions are capped. # # #
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