Reimbursement Powers This Health Coverage Solution
While these restrictions may be detailed, there are no limits to the amount that the employer can reimburse under the ICHRA structure. Further, employers can choose whether to reimburse insurance premiums, only qualified medical expenses or both.
The affordability elements of the employer mandate rules through the Affordable Care Act must continue to be satisfied by employers who offer ICHRAs. This means that the employer must calculate whether its reimbursement to each employee satisfies the mandate. While the Internal Revenue Service has released a safe harbor that employers can rely upon, the cost of the ICHRA will generally vary depending upon location.
In the end, the employer shifts the risk of health insurance premiums to the employee and is able to more predictably anticipate the cost of providing employees with a health coverage benefit.
When the Arrangement Might be the Right Fit
Smaller employers who want to provide health insurance as a benefit will likely find that the lower, more predictable costs of the individual coverage health reimbursement arrangement offer the best of both worlds, allowing the employer to supply a valuable employment benefit at a stable price point. That’s true even if the business owner is not subject to the ACA employer mandate.
Large employers who are subject to the employer mandate may wish to consider the benefits of the ICHRA structure for part-time/seasonal employees, or for employees working in a certain location. Under the ICHRA rules, employers are permitted to maintain traditional group health coverage for certain classes of employees while providing an ICHRA to other defined classes, so long as the class meets any requirements as to class size.
For example, if an employer is primarily located in one geographic area and has a group of employees working in a higher-cost area, the employer might benefit from offering employees in the high-cost location the ICHRA instead of group coverage. Similarly, many group plans use a local network that may not be available to employees working in a second location. The ICHRA allows employees to purchase health coverage that is accessible to them.
Employers with a large group of part-time employees may benefit from providing these employees with an ICHRA option — even though they are not required to do so under the ACA — as a retention tool.
Conclusion
In the right situation, the ICHRA can provide a powerful option to both control costs and offer employees the flexibility to choose their own health coverage. Of course, employers must pay close attention to the details to avoid running afoul of the IRS rules that govern Individual coverage health reimbursement arrangements.
