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A New Employer Health Plan Option for 2020

As employers continue to struggle with the challenge of providing and affording health care coverage for their employees, the IRS recently issued new rules to make Health Reimbursement Accounts (HRAs) more flexible, practical and available to a broader group of employers and employees.

Referred to as an Individual Coverage HRA (or ICHRA), employers now have the opportunity to bridge the gap between providing insurance and paying for insurance.

These new rules take effect January 1, 2020, and are worthy of consideration as employers consider their coverage and benefit plans for employees next year. The ICHRA could be a boost in attracting and retaining employees in a tight labor market.

The New ICHRA

Before considering the ICHRA, it's important to first understand what is a HRA. A Traditional HRA is an account-based group health plan funded solely by employer contributions. Salary reduction or other employee contributions aren't permitted. There's no statutory contribution limit; however, an employer can establish limits in its plan document. Funds held in the HRA can be used to reimburse an employee for medical care expenses incurred by the employee, as well as his or her spouse and dependents.

What makes the ICHRA so attractive is the funds in the account can be used to reimburse employees for their individual health insurance premiums. Under a Traditional HRA, the funds could not be used to pay for health insurance premiums.

The ICHRA relieves employers of the responsibility for selecting health insurance plans, as well as the cost and headache of administering those plans. Providing an ICHRA will allow employers to offer a pre-tax incentive to employees to help pay for medical expenses, including their personal health insurance premiums. The employer decides which classes of employees are eligible, as well as the amount to contribute to each employee's account on an annual basis.

To be eligible, the employee must purchase their own health insurance coverage (or be covered under Medicare). The insurance can be purchased through the state insurance marketplace or directly from an insurance company.

The rules regarding ICHRAs are new and somewhat complex. Since time is of the essence, there are providers who are ready to implement and administer ICHRAs. One example is this link to the PeopleKeep ICHRA.

We’ve only briefly outlined a few of the new rules. If you would like more detail regarding whether or not an ICHRA is right for you and your business, please give us a call.


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