HR MATTERS
Individual Coverage HRAs (ICHRAs)
By Greg Loudon, Principal
I

n 2019, the federal government released expanded health reimbursement arrangement (HRA) regulations. The new rules allowed HRAs to be used to pay for individually purchased health insurance policies effective in January 2020. How has that turned out for employers and employees?

BACKGROUND
Prior guidance prohibited employers from paying for an employee’s individual health insurance policy. The introduction of ICHRAs generated great interest from employers and employees alike—especially small employers that didn’t offer benefits. However, despite the enabling regulation, the insurance market was slow to develop products for employers. In the wake of COVID-19, ICHRAs in most states became overshadowed as employers clung to existing benefit plans to maintain stability for their employees.
REQUIREMENTS
ICHRAs allow employers of all sizes, not just small employers, to provide tax-free funding to an HRA that an employee can use to purchase individual health insurance policies (including Medicare). They can be designed to only reimburse premiums or eligible §213(d) medical expenses.
ICHRAs must meet certain requirements:
  • Participants must have individual health coverage or Medicare
  • Any limits on eligibility or contributions must comply with rules for specified classes of employees
  • Participants must be able to opt out and waive any future reimbursements
  • Employers must provide a new notice to eligible individuals

Minimum class size rules apply when an employer offers a traditional group health plan to one group of employees and an individual coverage HRA to another group based on full-time vs. part-time status, salaried vs. non-salaried compensation, or geographic location, if smaller than a state.

APPLICABILITY
In states with a robust and competitive individual insurance market, ICHRAs have made some headway towards replacing group health plans, but that does not include Alaska. However, Alaskan employers have found ICHRAs beneficial when hiring remote employees in a new state or carving out benefits for an allowed class. Small employers not required to provide benefits under shared responsibility rules may also be interested in using ICHRAs to provide tax-free contributions toward their employees’ insurance.

Employers are still allowed to offer a standalone HRA to reimburse excepted benefits and a full standalone HRA to retirees. The attractiveness of ICHRAs will depend on the employer’s staffing and benefit-offering goals and on the individual coverage options and vendor solutions available, which may vary from market to market and change over time.

See a detailed analysis of the ICHRA’s rules here: https://www.psfinc.com/articles/final-rules-two-new-hra-options-for-2020/

If you have any further questions about ICHRAs, reach out to the Parker, Smith & Feek Benefits Team.

Greg Loudon Headshot
Greg Loudon is a Principal of Parker, Smith & Feek and leads our Employee Benefits practice. A lifelong Alaskan, Greg has more than 25 years of experience in employee benefits consulting and is active in state and national healthcare reform. Greg can be reached at [email protected] or (907) 865-6829.
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