Small employers and their employees will be able to pay for individual ACA medical plans with pre-tax premiums through an expansion of Health Reimbursement Arrangements (HRAs).  The new “Individual Coverage HRA” (ICHRA) was created under new rules released by the Departments of Labor, Health and Human Services, and the Treasury (Departments) to permit employers to offer the new ICHRA as an alternative to traditional group health plan coverage, subject to certain conditions. In effect, ICHRAs extend the tax advantage of traditional group health plans (federal income and payroll tax exclusions for premiums and benefits received) to HRA reimbursements of individual health insurance premiums. The Departments estimate that, once fully phased in, about 800,000 people who were uninsured will gain coverage.

Health Reimbursement Arrangements or Accounts (HRAs) are employer sponsored and funded plans that allow employees to be reimbursed tax-free for qualified medical expenses and will now under the ICHRA include qualified individual medical insurance premiums for the employee and dependents up to a maximum dollar amount per year. Not to be confused with Flexible Spending Accounts (FSAs in Cafeteria Plans), HRAs do not allow employees to make voluntary payroll contributions. The employer funds and owns the HRA account. Unused HRA amounts may be rolled over to be used in subsequent years. However, employers may also establish an Cafeteria Plan to allow employees to pay for off-Exchange health insurance on a tax-favored basis, using a salary reduction arrangement, to make up for any portion of the premium not covered by the ICHRA.

BENEFIT FOR SMALL EMPLOYERS

The new ICHRA may be used by businesses of all sizes but may be most attractive to very small employers who could not afford to fully fund a group medical plan for their employees. 

Beginning on January 1, 2020, among other medical care expenses, ICHRAs can be used to reimburse premiums for individual health insurance chosen by the employee (that was previously not allowed), while maintaining the same tax-favored status for employer contributions for traditional group health plans. Now a small employer can sponsor an ICHRA and contribute a set and affordable amount for each employee’s medical premiums and un-reimbursed medical expenses. Offering this new benefit will help small employers compete for and retain employees.

BENEFITS FOR EMPLOYEES

Employees can enroll in an ACA Individual Health Insurance plan on an Exchange or purchase off an Exchange and have all or part of the premium paid through the employer ICHRA (depending on funding levels). And, the employee, including family members, can be reimbursed for other medical care expenses like deductibles, co-payments, coinsurance and uninsured dental and vision expenses. Note that individual short-term medical plans, dental or vision premiums do not qualify for reimbursement.

FIND OUT MORE

For more information about the new ICHRA plans contact the certified health exchange agents, Tim Gleason or Dave Root, at American Insurance. Call 208-746-9646 or email Medical [at] Am-Ins [dot] com or text us at (208) 518-0823 for an appointment.

Sources: US Departments of Health and Human Services, Labor, and Treasury – News Release June 13, 2019 EXPAND ACCESS TO QUALITY, AFFORDABLE HEALTH COVERAGE THROUGH HEALTH REIMBURSEMENT ARRANGEMENTS and FAQs on New Health Coverage Options