ICHRA – Silver Bullet or Shiny Ball?
by drhoda

Effective January 1, 2020, employers of every size are able to implement a new type of health insurance program for their employees. 

It is called ICHRA (Individual Coverage Health Reimbursement Account).  ICHRA allows employers to provide pre-tax dollars for their employees’ individual health and Medicare premiums, while maintaining tax savings benefits to the company.

For employers that are tired of waiting to see what increases the insurance carriers are going to implement year after year, this could be the silver bullet they have been waiting for.  The employer can still offer health insurance, but the choice of the plan is totally up to the employee.  The employer sets a dollar amount of reimbursement and the employee chooses their plan from any insurance carrier or an exchange. From a budgeting standpoint, the employer knows exactly what their contribution will be on an annual basis and they can step back from having to choose the plan(s) they think are best for their employees.

There are, of course, conditions to ICHRA:

  1.  A carefully drafted Health Reimbursement Arrangement (HRA) plan document must be set up, along with a Section 125 plan.
  2. The employer cannot offer both a group plan and an ICHRA to its employees, subject to discrimination and grandfathered guidelines.
  3. Employees must be enrolled in an individual medical plan (or Medicare) to qualify (a substantiation form will be required).
  4. The employer must adhere to discrimination guidelines when choosing contributions by employee class.  With a few exceptions, the same terms will apply to all employees within a class of employee.
  5. All compliance obligations will still apply (employee annual notice and ERISA compliance).

For small group employers (those with under 50 employees), moving to an ICHRA does not pose the same problems or concerns as for a large employer (those with over 50 employees).   If an employer has over 50 employees, they are deemed to be an Applicable Large Employer (ALE) under the Affordable Care Act (ACA).  If an employer is an ALE, all of the terms and conditions of the ACA still apply, including required premium contributions.  Without careful guidance from a trusted broker/advisor, an employer could chase the shiny ball and end up in compliance trouble and subject to hefty fines. 

To consider offering an ICHRA, instead of a traditional group plan, an employer should consider the following:

  1. Does their current benefit program, including a group health plan, assist in retaining employees?
  2. Will their employees know how to pick a plan in the marketplace that works for them?
  3. How will they determine how much to contribute to attract and retain employees? 
  4. Are there good individual plans and choices of plans in the area in which the employees live?
  5. Can they offer this without additional administrative burden to our accounting or HR employees?
  6. How can they know employees are actually selecting a plan (instead of collecting money for premiums not paid)? 
  7. How can they be assured the company will be in compliance with the ACA, ERISA and COBRA?
  8. Is their broker able to assist them with all of these questions and concerns that I have?

To get answers to these questions, your broker is going to have to provide you with a comparison of your group health plan(s) to individual coverage, by each of your employees.   Without this information, how can an employer be expected to make a decision on whether to offer an ICHRA or not?

The only way an employer should consider moving to an ICHRA is if they are confident they can assist the  employees in obtaining the individual health insurance that best meets their needs, manage the complex billing and administration requirements involved, confirm the employee’s plan choice (to ensure the employer is not paying the employee for coverage not obtained), and access plan documents necessary to ensure compliance. 

Intrigued?  Interested?  Depending on an employer group’s individual circumstances, ICHRA could be the silver bullet or the shiny ball for an employer group, so the guidance in reviewing and implementing an ICHRA is crucial.     One thing, however, is certain:  ICHRA is here and most likely, here to stay.   Every employer should be ready for a different conversation when it comes to their health benefits renewal.  

Kelly Brenna, Vice President, Employee Benefits , 952.707.8254; kbrenna@kainsurance.com