Individual Coverage HRA: Choice and affordability in employee health benefits
Health Insurance YOUR Way
No two people have the same health coverage needs. That's why one-size-fits-all group health plans are often a less effective solution for most of us.
With the new ICHRA, businesses can now return health coverage choice to employees. It’s all about having health insurance your way.
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.
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.
Market impact
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
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Employers providing the individual care HRA are not required to sponsor a group health plan for those employees;
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The ICHRA is available to employee groups of any size;
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There is no minimum or maximum limit on the amount of funding an employer may provide;
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Broad latitude is given to defining employee classification groups for variations in the type of coverage offered and the level of the individual care HRA benefit;
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Participants provide required proof of coverage; no further employer processing required;
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Integrates with Medicare (for eligible employees); and,
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Works with HSAs and health FSAs.
Advantages for employees
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Choose your own individual health coverage based on what you need and what you can afford;
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Be reimbursed for qualifying health insurance up to the amount your employer provides in the ICHRA;
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Keep the same health insurance when you change jobs;
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No steep increase in health insurance premium if you leave work altogether (as usually applies under COBRA);
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When both spouses have an employer-sponsored ICHRA, premium reimbursement can be split between thetwo; and,
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An opt-out provision for employees that would rather forego the new HRA in favor of a premium tax credit on a health care exchange.
ICHRA distinctives
The ICHRA works much the same as other HRAs, with the following important differences:
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Reimburses premiums from open market or exchange;
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Available to businesses with any number of employees;
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Participating employees are no longer eligible for a premium tax credit for coverage purchased on an exchange; and,
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Employees may opt out of HRA reimbursements to retain eligibility for premium tax credit.
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.
Opt-out provision
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.
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