The Individual Coverage Health Reimbursement Arrangement, or ICHRA, is the new regulation that is starting to get a lot of buzz. ICHRA is an employer-funded health benefit that is used to reimburse employees for individual health insurance premiums and healthcare expenses. This exciting benefit gives employers a practical option that creates flexibility and maintains employee satisfaction.
Why is ICHRA such a big deal?
Since the enactment of the Affordable Care Act, Health Reimbursement Arrangements (HRAs) have been very limited in how they can be used by employers. Using an HRA to pay for individual health insurance was strictly prohibited. That is until now.
Starting in January 2020, the opportunity for employers to reimburse an employee for all or a portion of their individual/family insurance policy will be restored and this alone creates new options for employers and the way they offer benefits to their employees.
The ICHRA is made up of several parts that all work together. Today we will explore the way employee classes come into play with the ICHRA. Employee classes allow businesses to draw distinctions among employees in benefits.
Employee Classes Defined
The ICHRA comes with 11 different employee classes businesses can leverage while structuring benefit eligibility and allowance amounts. The classes separate employees into groups by job-based criteria that include locations, tenure, hours worked and more. The 11 classes are as follows:
- Full-time employees
- Part-time employees
- Salaried employees
- Hourly employees
- Temporary employees of staffing firms
- Seasonal employees
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees in different locations, based on rating areas
- A combination of two or more of the above
An employer can offer a contribution to one class and not another, or they can differ amounts from class to class. For example, they could offer $300 to full-time employees who are single and $600 to full-time employees who have a family. To keep things simple, an employer can even offer the same amount to all classes equally.
Age-Based Contributions
For age-based contributions, businesses can only offer higher allowances to older employees. The employer must ensure that their older employees would be eligible for a larger amount, but not exceed a certain ratio. For example, the contribution for the oldest employee must be more than that of their youngest co-worker but cannot exceed more than three times the amount. If an employer offers its 18-year-old employee $100 a month, it could only offer the oldest employee up to $300.
Eligibility for Employee Classes
CLEARING UP THE CONFUSION: The class size requirements ONLY apply for companies offering both group insurance and an ICHRA to different classes. Any employer regardless of size can offer an ICHRA.
Employers may want to offer both group health insurance and the ICHRA plan to their employees. If they choose to offer both based on full-time or part-time status, salaried or hourly payment structure, or geographic location, they must ensure their employee classes are of a certain size. This size criterion varies by employer as follows:
- 10 employees for employers with fewer than 100 employees
- 10 percent of the total number of employees for employers with between 100 and 200 employees
- 20 employees for employers with more than 200 employees
Note: This section does not apply with temporary employees, collective bargaining agreements, seasonal employees, foreign nationals or those in a waiting period.
More Flexibility Equals Benefits Success
With the employee class structure, employers are able to get a little creative with how they want to structure their benefits. They can specifically target highly-valued employees. For most businesses, their full-time employees provide the greatest value, which is why it might make sense for an employer to offer them larger amounts than part-time employees.
Employers can also choose to offer different allowance amounts to different employees within each class based on the employee’s age and family size.
With so many options and flexibility, the ICHRA can be tailored to each business’ budget so they can achieve the most desirable outcomes.
In conclusion, the ICHRA brings flexibility back to the employer. Structuring employee eligibility based on the defined classes can enable businesses to use the ICHRA to seek out talent more effectively and maintain valuable employees. Flexible plan options such as the ICHRA will help employers achieve benefit success, and that’s a win-win for everyone.
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