Health Coverage

The New Individual Coverage HRA (ICHRA)

individual coverage HRA

Starting from January 1, 2020, businesses can already offer their employees the newest type of health reimbursement arrangement (HRA), called the individual coverage HRA (ICHRA). It is an alternative option for companies to cover their workers’ medical fees, such as out-of-pocket expenses and monthly premiums. To help you understand what ICHRA is, here is a discussion as to what it is and how you can become eligible.

Types of HRA

Health reimbursement arrangements are the legal ways for employers to reimburse their employees’ medical expenses only when they are approved. There are different types of HRA, such as:

  • Dental/ Vision HRA – Exclusive reimbursements of payments made for dental and vision services.
  • Retiree HRA – This type is exclusively offered to the firm’s retired employees.
  • Group coverage HRA – This type is available for businesses that wish to offer a group health insurance policy. Companies can also provide monthly allowances on top of the plan to cover items that are not included in the coverage.
  • Excepted Benefit HRA – Similar to group coverage HRA, but also reimburses workers for excepted benefits that are not typically covered by the other type.
  • Qualified Small Employer HRA (QSEHRA) – This type is the most famous of all the HRAs. It is only available for businesses that only have 50 or fewer employees. The employer may give various amounts of allowances to their workers, depending on their respective family sizes.
  • Individual coverage HRA – It is very similar to QSEHRA, with relatively fewer restrictions.

Although there are several types of HRA, the same steps are followed for all:

  1. The company decides on the maximum tax-free amount that they are willing to offer their employees each month. This is what they call the allowance amount.
  2. Employees are then free to purchase health care products and services that they need, which may include personal health insurance.
  3. To get reimbursed, the employees must send proof of their expenses through documentation, such as receipts or an explanation of benefits.
  4. Once they have submitted the documents to support their claims, the business then reviews everything. They will check whether the product or service is HRA-qualified and also see when it was acquired and how much they spent for it.
  5. If they see nothing wrong with the purchase/s, the business will then reimburse their employees from their allowance amount. If they have claimed the maximum amount, they will not be refunded for any other payments until the following month when it is renewed. 

What is Individual Coverage Health Reimbursement Arrangements (HRAs)?

individual coverage HRAs
individual coverage HRAs

The Individual Coverage HRA is an account-based health plan, which enables employers to have better control of costs and provide non-taxed refunds to employees that made HRA-qualified health purchases.

These may include monthly premiums from private insurance providers or the Marketplace. Employees are free to select the type of insurance policy that would be best for them and their families. You can visit this site and find out which Marketplace to go to depending on your state.

health coverage

This type is very different from traditional group health coverage. If employers offer ICHRA to their employees, it will affect their eligibility to accept premium tax credits from the Marketplace. They will also not be able to receive benefits from the premium tax credit.

The impact it has on their workers will depend on the affordability of the offer. Businesses will have to look at how much they want to contribute, the employee’s wage, and the various plans available for them.

The employees and their household members will have to be enrolled in a separate individual health insurance coverage or Medicare the entire time the ICHRA covers them. It is important to remember that dental and vision benefits will not be included in this HRA.

If the company you are working for would like to offer the individual coverage HRA to you, they will have to send you a written notice 90 days ahead of the start of the plan. However, if you are a new employee and receive the offer in the middle of the plan year, you will be sent a notice on the very first day your individual coverage HRA starts. Remember to keep this notice in a safe place, along with all your other important documents. Refer to the picture below to see the sample notice.

individual coverage HRAs

If you want to read more about the medical expenses that may be reimbursed with ICHRA, you can check IRS Publication 502.

Medical and Dental Expenses Health Coverage Tax Credit

Eligibility Criteria for ICHRA

Businesses are allowed to offer the individual coverage health reimbursement agreement to all employees or everyone under specific classes. However, older workers or those that have dependents may receive a higher amount.

Companies cannot offer both ICHRA and group health plan to any employee. You may only be enrolled in one. If the business decides to provide a class of employees with a group plan, they must follow the class size limitations. You need to have a class having more than:

  • ten employees in a company with fewer than 100 workers in total
  • 10% of the sum of all employees if the company has around 100 to 200 in total.
  • twenty employees for firms that have more than 200

You will be eligible to receive an ICHRA if you belong to any of the following classes:

  • Full-time employees
  • Part-time employees
  • Seasonal employees
  • Salaried employees
  • Nonsalaried employees
  • Workers that are covered by a union or a collective bargaining agreement
  • Workers that haven’t met the group plan waiting period
  • Temporary staffing firm workers
  • Nonresidents that do not have any income in the U.S.
  • Workers belonging to the same geographic area
  • Any group of workers that are formed by a combination of two or more of the classes mentioned above

Remember, for you to be eligible for the ICHRA, you need to be enrolled in an individual health insurance coverage for the entire plan year. If you have dependents, the same criteria will apply.

Always keep in mind that being eligible for the ICHRA means that you cannot become eligible for the traditional group health plan.

Qualified Small-Employer HRAs vs. Individual Coverage HRAs

new HRAs

As mentioned before, Individual Coverage HRAs are very much similar to Qualified Small Employer HRA. However, they have significant differences, in terms of its limitations, including:

1.    Business size.

QSEHRA is only available for companies with fewer than 50 employees that work full-time. On the other hand, in ICHRA, there are no business size specifications.

2.    Eligibility requirements.

If you are a full-time employee, you are automatically eligible for the QSEHRA. Part-time workers may be included. However, the same terms must be offered to all employees. You may participate in the QSEHRA even if you are not enrolled in any individual health insurance, but workers that do not have MEC still have to pay income tax for all the reimbursements made throughout the time they were uninsured.

As for ICHRA, the business has the freedom to set eligibility guidelines for each of the employee class, but the same terms must apply to all employees in the class. Unlike the QSEHRA, you cannot participate in ICHRA if you and your dependents each do not have individual health insurance.

3.    Allowance restrictions.

For QSEHRA, the limit for self-only employees is $5,150 and $10,450 for those with dependents. They may, however, tweak the amount depending on family status, age, and the size of the family, but never based on the employee class they belong to.

For ICHRA, there are no specified caps. Business, again, have the right to vary allowance amounts depending on the employee class, age, and family size.

4.    Ability to offer a group policy.

If the business provides QSEHRA, they cannot give a group policy to any other employee class.

On the other hand, those that provide ICHRA to some employee classes may also offer a group policy to different classes. However, you must remember that you cannot grant both ICHRA and group health plans to the same employee class.

5.    Premium tax credit.

Employees that participate in the QSEHRA can still receive premium tax credits, but the total credits would be reduced dollar-for-dollar. As for ICHRA, you will not be eligible for premium tax credits. To apply for a premium tax, you must fill up Form 8962.

form 8962

There is still plenty to learn about the relatively new type of HRA, Individual Coverage HRA. If you have some queries that were not addressed in this article, you can read these HRA FAQs. Other than ICHRA, Excepted-Benefits HRA is also very new. Because of the varying conditions of every type, you must research each one, whether you are an employer or an employee.

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