A New Way to Provide Employee Health Insurance in the COVID-19 Era

Permissible classes of employees include part-time employees, full-time employees, seasonal workers, hourly workers, salaried workers, new hires and workers employed or not employed through a temporary staffing agency.

In response to concerns that the expanded HRA option could allow employers to push sicker workers into the individual markets by manipulating the "class of employees" requirement, the agencies imposed strict limits on the class sizes in certain situations.

While these restrictions may be detailed, there are no limits to the amount that the employer can reimburse under the ICHRA structure. Further, employers can choose whether to reimburse insurance premiums, only qualified medical expenses or both.

Pay Attention to These Potential Traps

ICHRAs shift the risk of rising health costs to the employee (to a certain extent). However, for applicable large employers to use ICHRAs, they must continue to satisfy the affordability elements of the ACA employer mandate. This means that the employer must calculate whether its health contribution to each employee satisfies the mandate. The IRS has released a safe harbor that employers can rely upon, although the cost of an ICHRA will continue to vary depending upon geographic location.

Under the first safe harbor, the employer can calculate whether the ICHRA is affordable based upon the minimum cost of a silver plan offered through the health insurance marketplace in the employee's location. Under the second safe harbor, the employer can use the prior year's cost of a silver plan in the month of January. Of course, these safe harbors require the employer to engage in a separate calculation to determine whether each ICHRA is affordable.

Further, for the ICHRA to be ERISA-exempt, the employer is prohibited from endorsing any specific health insurance carrier or coverage option. While it remains unclear how strict the IRS' enforcement of this rule will be, employers should pay close attention. Even inadvertently recommending a plan to employees could be interpreted as endorsement—meaning that the employer could become subject to ERISA filing and reporting requirements.

The employer must also be careful to comply with the nondiscrimination rules that apply in the context of traditional group health coverage versus the ICHRA, as well as for amounts reimbursed under the ICHRA to any given employee.

Conclusion

The ICHRA can provide a valuable cost-control option for employers. Given current economic uncertainties, this employment benefit option might be particularly attractive for employers looking to control costs in 2021 and beyond.

Related: 

• America Will Dramatically Change the Way It Provides Health Care by 2030
• PeopleKeep Flutters the Individual Coverage HRA Market Curtain
• Some State Health Markets Tilt More Toward ICHRAs: Vericred