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. 

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 pay 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 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.

Allowable Classes

      • Full-time employees
      • Part-time employees
      • Seasonal employees
      • Temps who work for a staffing firm
      • Salaried employees
  • Union employees
  • Employees in a waiting period
  • Foreign employees who work abroad
  • Employees in different locations, based on rating areas
  • A combination of two or more of the above

The Rules

      • Any employee covered by the ICHRA must be enrolled in health insurance coverage purchased in the individual market;
      • 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 an ICHRA;
      • Employers must provide information to staff on how an ICHRA works;
  • Employers may not create a class of younger employees, who they want to keep in their plan because they’re healthier;
  • A class must have 10 or more workers if the firm has fewer than 100 staff. For employers with 100 to 200 employees, the minimum class size is 10% of the workforce, while for employers with more than 200 staff, the minimum class size is 20;
  • 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. Employees with families can be offered a higher amount per month and rates can be scaled by age.

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