The acronym of the day is ICHRA, which stands for Individual Coverage Health Reimbursement Arrangement, and it will allow employers to reimburse employees for their health insurance plans. ICHRA was finalized in June 2019 and will take effect in January 2020.
Here's what ICHRA allows you to do:
HR defines its own plan to determine who's eligible and define limits on the reimbursements.
Employees shop for their own health insurance plans from whichever vendor they see fit.
They submit reimbursement claims to you.
Employers reimburse them if their claim is legit.
This means a huge bump in the flexibility of your employee health insurance options.
The mainline policies and thoughts behind the ICHRA are not new. ICHRA is just the current iteration. It's taken years to get to this point.
Although HRAs were common pre-Affordable Care Act (ACA), some unintended consequences of regulations coupled with the bill actually penalized companies that continued to tap into HRAs.
The problem wasn't really addressed until 2016 when the Obama administration signed the 21st Century Cures Act, establishing the
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Think of it as ICHRA-lite. This allowed tax-free reimbursement for small employers.
ICHRA wasn't established to cover employers of all sizes until 2018, and it was just finalized in June of 2019.
Difference Between ICHRA and Traditional Group Plans
So how is this different from a standard HRA, you ask?
Well, first, ICHRA uses a tax-free reimbursement model called a "defined contribution." This means employers have greater control over costs and employees have more options. That is to say, rather than a one-size-fits-all plan offered by employers to all employees, each employee's insurance is personalized.
In addition, rather than all of the onus being on the employer to manage the plan, employees have much more control themselves. They can even take their health care plan with them when they change employers.
Finally, employees might be able to get premium tax credits (PTC). These are ways for eligible employees to cover premiums for their plans. Typically these apply when the selected plan is considered "unaffordable." Employers are also required to give employees an opt-out opportunity, wherein employees might do so to receive such PTCs.
Now, it's not all unicorns and rainbows. There are some disadvantages to ICHRA plans versus traditional group plans. One of those is that in-network care can be more difficult to find, so employees will need to carefully select HMOs within their network. The second is the price of individual plans is 10-20% higher.
In other words, ICHRA plans are not necessarily perfect for everyone. This guide gives this "pro-tip":
"When evaluating ICHRA vs a group plan for your firm or your client, it’s important to complete this analysis on a class-by-class basis. For example, a group plan may be better for full-time employees that want a large provider network, but ICHRA might be better for part-time employees that are network agnostic and value choice and portability. "
Amy Skinner, Content Editor at Take Command Health
When Can You Take Advantage of ICHRA (Can my company reimburse 2019 premiums?)
If you're here to answer the question "Can employers reimburse employees for premiums in 2019?" The answer is yes, but only if you're a small employer. Remember the QSEHRA that lead to the establishment of ICHRA? Hint: I discussed it in the background section of this article. Well, that covers small employers (fewer than 50 employees), as the name suggests. It's in effect right now, so you can reimburse employees for 2019 if you qualify.
Unfortunately, larger companies (more than 50 full-time employees) will have to wait until ICHRA takes full effect in 2020.
The ICHRA will soon allow large employers to reimburse their employees for individual health care plans, tax-free. The advantages of this sort of policy are numerous: more personalized packages, greater control for both employers and employees, greater flexibility, etc. Unfortunately, companies with 50 or more employees won't be able to take advantage of this until the bill takes effect in January 2020. But if your company is fewer than 50 employees, you've been able to get reimbursed since. So strap your boots on for 2019 reimbursement.
To read more about this complex subject, check out this insanely thorough guide. And if you're looking more carefully at employee benefits, check out this article to find out 4 things you didn't know.