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Individual Coverage HRA - Potential Issues

July 19, 2019

Large employers that choose the individual coverage health reimbursement arrangement (ICHRA) programs over the traditional group health plans for full-time employees will need to ensure that the workers can afford the ACA exchange plan, or they may face penalties.

Final regulations were posted on June 4th, but compliance specialists are still finding potential issues with these new regulations. For example, employers large enough to be held to the ACA shared responsibility rules, or employer coverage mandate rules may be subject to a penalty.

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Typically, an employee that is offered an individual coverage HRA wouldn’t be able to use an ACA exchange plan premium tax credit subsidy. Therefore, the IRS wouldn’t impose the employer coverage mandate penalties on the employer. However, Foley Hoag lawyers write that “If an individual is offered the HRA option, but declines it, the individual may be able to qualify for the credit if the HRA, when combined with individual market coverage, is unaffordable.” If those employees that decide to decline coverage end up qualifying for the tax credit, employers could end up facing penalty bills. The Treasury Department and the IRS will eventually be proposing new rules around this topic.

Another basic issue with the individual coverage is that it does tend to be more expensive than group coverage. Edward Fensholt of Lockton Companies wrote, “In a tight labor market, employers using health insurance as an attraction and retention tool would have to increase HRA contributions, year over year, in amounts that would likely far and away exceed the increases they’d pay for equivalent coverage on a group basis.”

So, what is Individual Coverage HRA (ICHRA)?

The employer can provide as much cash as they want through an ICHRA, but the employee must use it to provide coverage that aligns with the ACA coverage rules. Additionally, employers can contribute as much as $1,800 a year to the account for other services such as dental insurance. 

Why are employers selecting ICHRA?

William Sweetnam Jr. speculates that employers who aren't big enough to be held to the ACA employer mandate may be more interested in this option. It's also possible that employers would like to provide coverage to employees who aren't affected by the mandate, including part-time and seasonal workers. Lastly, employers may want to offset their employees struggles with deductibles and co-pays by offering some relief through an HRA. 

 
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