Way back in 2002, rules were released creating Health Reimbursement Arrangements with tax advantages allowing employers to provide funds to help employees reduce growing out of pocket health expenses. By 2004 our firm was busy recommending high deductible health plans, not with HSAs, although recently legalized, but instead with first dollar HRAs. Why? Because the HRA is an employer promised benefit that has a loss ratio. For example, if every employee is promised $500, the global employer cost ends up being $250 – $350 per employee due to turnover and the overall health of a workforce. Traditional HRAs allow an employer to promise more and pay less.
It wasn’t until 2011 that Health Savings Accounts caught on in our region as many workers came to understand that HRA funds are “use it or lose it”, while HSAs build a portable health care reserve. Even though legal starting in 2004 and expanded in 2007, it took seven years for HSAs to be embraced with significance. I started my personal HSA in 2008, and since you are reading my blog I will proudly state that I am on track to reach $100,000 in savings in the next two years.
So what are Individual Coverage HRAs and will they take off just like original HRAs, or will it take years for them to catch on as it did with HSAs? ICHRAs is the acronym and the rules allow employers to provide funds on a tax deductible basis for employees to use to purchase their own comprehensive individual health insurance aligning with ACA standards for coverage.
- Eliminating risk by establishing a defined contribution budget for health coverage that is tax favored
- Tiered funding amounts based upon age and number of dependents covered
- Allows employees to purchase health coverage they believe best suits their needs from insurers that sell individual insurance policies, including Medicare type plans
- Allows personal contributions above employer funding that may be paid pretax through Section 125, if coverage is not purchased from a Health Care Exchange
- Allows employers to continue to fund HSAs
- Eliminates employer COBRA coverage continuation responsibility
- Eliminates employer group health plan ERISA requirements
- Confirming that individual health plans available from insurers are at a competitive cost advantage versus projected employer group plan cost exposure
- Substantiation procedure requirements to ensure ICHRA funds are used to purchase comprehensive health insurance (short term health plans do not qualify)
- Employer responsibility to provide ongoing, timely notices to employees
- Employer obligation to be aware of the details about each individual plan selected
- Employee relations infrastructure to help resolve errors, denials and appeals
- Annual evaluation of adequate funding levels so that individual health insurance remains affordable
- Ability for future political administrations to change ICHRA rules
- Inability to offer employees an employer group plan or an ICHRA to the same class of employees
The rules offer significant flexibility in defining unique classes of employees as follows:
– full time
– part time
– different geographic rating area
– new hires in waiting period
– non resident aliens with no U.S. income
Minimum class size rules apply based upon number of employees. Also, the option exists to continue a group plan for current employees while offering ICHRAs to new hires.
With acronyms abounding in our world, the ICHRA is not to be confused with the EBHRA, “Excepted Benefit HRA” as they are quite different. EBHRAs can be introduced in tandem with a traditional group plan. The most an employer may offer is $1,800 annually and its purpose is to allow tax favored HRA funds to be offered to employees who decline employer provided health insurance because it is too expensive or the benefits too lien. Think about workers in the food industry who are only offered high deductible health plans, exposing them to thousands of dollars of out of pocket risk. EBHRA funds may not be used to pay for comprehensive individual health insurance, and yet monies may be spent on COBRA premiums, short term health plans, along with dental and vision care.
The EBHRA will result in limited adoption, while the ICHRA may take off like HRAs did more than a decade ago. Since it is likely that increases in health care spending will continue due to growing high cost prescription Rx exposure and other high cost claimant situations, the flexibility employers have requested is now in place beginning January 1, 2020.
Since ICHRAs are available to employers of all sizes, those who currently self insure their workforce covering fewer than 500 employees will likely take a serious look. The ICHRA protects employers from swings in losses caused by laser deductible exposure on chronically ill patients and experiencing higher than average large losses.
Eliminate health expense risk from your budget? The concept is no longer “too good to be true” with Individual Coverage Health Reimbursement Arrangements – ICHRAs.