ICHRAs versus QSEHRAs
Small employers, which are those not subject to the employer mandate because they have fewer than 50 full-time and full-time equivalent employees, are always looking for ways to provide health coverage for their staff on an affordable basis.
Looking ahead to 2020, small employers have two ways in which they can reimburse employees for their individually-obtained health coverage. In other words, small employers don’t have to provide a traditional group health plan to offer meaningful health coverage and not break the bank.
You know that game where you make words from cubes with letters on them -- boggle word game? Well, in the arena of health coverage, there are numerous words you can make to denote various types of health care plans. For example, there is FSA for flexible spending account. There is HSA, for health savings account. There is HDHP for high deductible health plan used in conjunction with an HSA. And a few years ago, another option was created: qualified small employer health reimbursement accounts, or QSEHRAs. Now there’s a new choice: individual coverage health reimbursement accounts, or ICHRAs. (There’s another new option, called an excepted benefit health reimbursement account, or EBHRA, but that is not discussed further here.)
Under a final rule developed jointly by the Treasury Department (IRS), the Department of Labor (DOL), and the Department of Health and Human Services (HHS) that will enable small employers (and large employers with special rules) to offer ICHRAs under specific conditions beginning on January 1, 2020.
An ICHRA is funded solely by the employer; no employee contributions are allowed. However, the employer can have a cafeteria plan to permit employees to pay for coverage (other than coverage through the government Marketplace) on a pre-tax basis any amount that is greater than what the employer is paying through the ICHRA.
If a small employer chooses to offer an ICHRA, it must be done on a nondiscriminatory basis. But this does not preclude offering increased amounts for older workers (as long as contributions don’t vary by more than 3:1 for older versus younger workers) or workers with dependents. And distinctions are permissible for certain classes of workers (full-time, part-time, salaried, hourly, seasonal, etc.).
The amount of the reimbursement under ICHRAs is set by the employer. But an employee is only eligible for reimbursement if he or she is enrolled in an individual health insurance plan. This can be on or off the government Marketplace or it can be Medicare. The health insurance for purposes of an ICHRA cannot be short term or of limited duration. Health coverage under a spouse’s group health insurance plan does not count, so an employee could not receive reimbursement in this situation.
The employer has no responsibility for the type of coverage selected by an employee. All that is required is to have the employee substantiate coverage to the employer. This can be done using a model form to FAQs on the New Health Care Coverage Options for Employers and Employees provided by the three federal departments that issued the final rule. There is also a model form here that can be used for employees who lack full-year coverage.
The employer must provide notice to employees of their option to receive reimbursement under an ICHRA and their obligation to purchase coverage in order to receive reimbursement. This written notice should explain the offer as well as alert employees that the premium tax credit cannot be used if ICHRA reimbursements are accepted by them. Again, there is a model notice form in the FAQs that can be used by employers.
These plans, which were created by the 21th Century Cures Act and began in 2017, which are restricted to small employers (those who are not subject to the employer mandate under the Affordable Care Act), can also be used to reimbursement employees for coverage they buy on the individual market. However, the rules for QSEHRAs are slightly different than the rules for ICHRAs.
QSEHRAs are limited to small employers that do not have a traditional group health plan. And like ICHRAs, QSEHRAs must be provided on a nondiscriminatory basis. (The statute uses the term “provided” rather than offered, so an employee can’t decline participation.)
Like ICHRAs, only employer contributions are permissible. However, unlike ICHRAs, such contributions are subject to a statutory cap (in 2019 this is $5,150 for self-only coverage or $10,450 for family coverage).
The IRS has provided extensive guidance for QSEHRAs and I’ve written about QSEHRAs a couple of years ago. The DOL, Treasury, and HHS has some information about ICRHAs, but extensive guidance from the IRS has yet to come.
Which one to choose?
There’s no simple answer to this question. Talk with a benefits advisor to determine which option is better for your situation. You may want to act sooner rather than later because planning for 2020 is underway. Keep enrollment periods in mind:
- The open enrollment period for individual health insurance for 2020 runs from November 1, 2019, through December 15, 2019.
- The open enrollment period for Medicare for 2020 runs from October 15, 2019, through December 7, 2019.