News broke a couple of months ago about the possibility of employers offering an enhanced Health Reimbursement Arrangement (HRA) in lieu of health insurance (an option that is currently extremely limited under the ACA). Under the proposal, employees who “enroll” in the HRA would have to demonstrate that they are using their HRA funds to purchase individual health insurance. These are coming to be known as Individual Coverage HRAs, or ICHRAs.
Although the concept of the ICHRA may be intriguing for some, there are many obstacles to them becoming widely available. And it’s unclear at this time whether they will ever be viable for most employers. Here’s a brief summary of the challenges they present.
ICHRAs must be the only health plan offered.
Conceptually, ICHRAs are a problem because employers who have one can’t offer any other health coverage (i.e., group health insurance). It’s unclear how many employers will be interested in telling their employees that their health benefits are being terminated and they are on their own in finding individual coverage, likely through the ailing Health Insurance Marketplace. (On the other hand, this may be an interesting option for employers that don’t already offer health benefits.)
Interaction with ACA is complicated.
From a compliance standpoint, one of the iffiest aspects of ICHRAs is that there don’t appear to be any restrictions on the type or size of employer that can offer them. As long as the ACA is still in effect, employers with 50 or more full-time employees will be obligated to offer health coverage that meets the law’s minimum coverage requirements (i.e., provides minimum value) and is “affordable” to employees. It’s not yet clear how those requirements can be met by an employer that simply puts a sum of money into an HRA for its employees to spend on individual insurance.
It appears the IRS is already grappling with these issues (and others). The agency recently issued a notice seeking comments on a method for determining whether ICHRAs meet the ACA’s employer mandate. The notice describes an extremely complicated process for determining whether an ICHRA provides affordable coverage to employees. If an ICHRA meets the ACA’s affordability requirements, it will also be deemed to provide MEC and minimum value, the other two requirements of the employer mandate.
In general, to be affordable an ICHRA would need to cover the cost to each employee of a “silver” level health plan offered through the Marketplace. Part of the reason this is so complicated is the cost of such plans vary not only by location, but also by the individual’s age. So, in short, for many employers the only practical way to guarantee affordability for all employees would be to make sure they contribute enough to their employees’ ICHRAs to cover the premiums that would be paid for a silver plan by their oldest employee.
ICHRAs may also prevent lower-paid employees from obtaining subsidized coverage on their own through the Marketplace.
ICHRAs will be considered self-insured health plans, which means they will have to satisfy nondiscrimination requirements similar to those that apply to other self-insured plans. The notice proposes a pretty complicated process for making that determination as well.
Being fully informed is never a bad thing, but it’s still too early to be thinking seriously about adopting an ICHRA. Healthcare options will continue to evolve; working with your benefits advisor to guide you along the right path should serve you well.
By Julie Athey, Director of Compliance, The Miller Group