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A New Employer-Financed Approach to Health Coverage

A New Employer-Financed Approach to Health CoverageAs we know, employer-sponsored health insurance consists of employers offering health plans that are purchased (or self-funded) from insurance companies (or third-party administrators). These health plan(s) are reviewed annually and rolled out to eligible employees and family members. Some employees may have only one plan to choose from, or if employed by a larger organization, have been given a handful of plan options. Employee decisions are usually based on premium cost and cost-sharing arrangements, such as deductibles, copayments and network provider selections.

Individual Coverage Health Reimbursement Arrangements (ICHRAs)

On June 13, 2019, the U.S. Departments of Health and Human Services, Labor and the Treasury issued a final rule that will allow employers (of all sizes) to fund a new kind of health reimbursement arrangement (HRA) – known as an individual coverage HRA (ICHRA). The ICHRA is a tax-free reimbursement that will help pay the insurance premiums for employees who purchase individual-market health insurance, including insurance purchased on the public exchanges that were formed by the Affordable Care Act (ACA). More about the Iowa individual insurance markets can be found at the Iowa Insurance Division website.

Employers may continue to sponsor their own health plans. But, using the ICHRA also provides tax-deferred funds to other employees who are not eligible for the employer-sponsored health plan. The ICHRA program was scheduled to begin January 1, 2020, allowing employers to pay all or a portion of the plan’s coverage cost purchased by the employee in the individual market.

To learn more, the departments posted FAQs on the new rule.

Employer-sponsored health coverage takes a great deal of employer time and expense to analyze, negotiate, communicate, comply with regulations and monitor throughout each plan year. It can be a huge headache to employers, who are, first and foremost, concentrating on their services and products to remain financially viable. Becoming a distributor of health insurance to their employees is secondary and, frankly, can be a costly distraction from the core business. Obviously, attracting and retaining qualified employees is critical to successfully remain in business. The ICHRA attempts to allow employers to focus on their core business strengths while finding new ways to subsidize the cost of employees’ health insurance.

More About ICHRAs

Employers who are interested in pursuing ICHRAs will need to know some key requirements:

  • Employers may either offer an ICHRA or a traditional group health plan, BUT MAY NOT OFFER EMPLOYEES A CHOICE BETWEEN THE TWO.
  • Employers can create classes of employees who are eligible for ICHRAs, using employment distinctions such as salaried versus hourly, full-time versus part-time, or employees located in certain geographic locations. Certain classes can be offered ICHRAs, while providing other classes with the traditional health plan.
  • Employers cannot discriminate within classes when offering ICHRAs, but they can increase the ICHRA reimbursement amount for older employees and for those with more dependents.
  • If desired, employers can keep their traditional group health plan for existing employees, but offer only new hires an ICHRA. This may invite adverse selection issues over time, but this is at least allowable.
  • If an employee purchases an individual health insurance plan outside an ACA-related exchange, and the employer reimbursement does not cover the full premium, the employer is allowed to permit the employee to pay the balance of the premium for coverage on a pre-tax basis through its cafeteria plan.
  • Employees who purchase individual coverage through ACA-related exchanges and receive premium reimbursements through ICHRAs may not qualify to receive any federal premium subsidies typically allowed through the ACA. Additionally, the tax code states the employer may not permit employees to make salary reduction contributions to a cafeteria plan to purchase coverage.
  • There are minimum-size requirements for the class of employees offered ICHRAs. This can be found in both the final rule and posted FAQs.
  • The Department of Labor has issued ICHRA Model Attestations that employees can sign to confirm they have purchased individual health insurance coverage. Medicare Part A and B, or Medicare Part C can also be covered by the ICHRA.

There are a number of other nuances that employers must know about before seriously considering whether or not to implement ICHRAs. There are just too many to mention in this particular blog.

As mentioned earlier, the ICHRA is yet another option for employers to financially assist their employees in purchasing health insurance coverage without having to fight the hassles of implementing and maintaining their own health plan – if they wish to completely relinquish offering traditional coverage. ICHRAs, however, are not designed to fundamentally cut healthcare prices and reign in bloated waste and eliminate inefficiencies. Combating these hefty issues goes well beyond the discussion of insurance products and how they are financed.

Because ICHRAs will expand employer options and employee choices for healthcare coverage in the future, our upcoming 2020 Iowa Employer Benefits Survey© will include a module of questions that will attempt to learn more about whether Iowa organizations are aware of ICHRAs and whether they may consider pursuing the ICHRA in the next few years. Stay tuned…

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Comments

  1. Michael Elam says

    Curious to know if any/many employers moved to this option for 1/1/2020, or are in conversations to do so in the coming year or two.

    • David P. Lind says

      Great question, Mike! The simple answer is ‘I don’t know.’ Because this option is so fresh and very few employers know much about it (if at all!), our 2020 Study will take a relatively quick dive to learn more from Iowa employers about their appetite for implementing this option in some way, either completely replacing their traditional health offering, or at least use this option for certain classes of employees. Regardless of what we learn, 2020 will become the base year for any future research on this topic.

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