Posted on January 30, 2020

This article presents general guidelines for Georgia nonprofit organizations as of the date written and should not be construed as legal advice. Always consult an attorney to address your particular situation.

By Kathryn B. Solley, Nelson Mullins Riley and Scarborough, LLP

In the past, employers, including nonprofits, were prohibited from reimbursing employee health care premiums. With the institution of ICHRAs, which are explained in more detail below, beginning on January 1, 2020, employers are once again permitted to reimburse employees for health care premiums under certain circumstances.

What is an ICHRA?
ICHRA stands for Individual Coverage HRA or Health Reimbursement Account. Pronounced “Ick-rah”.

What does an ICHRA do?

An ICHRA allows an employer to reimburse employees for individual health insurance premiums on a tax-favored basis.

Which employees can be offered an ICHRA?

An ICHRA is offered only to employees who are not offered group health insurance; an employee cannot choose between an ICHRA or group health insurance.
If all employees are offered an ICHRA, the size of the employer does not matter.
However, employers are permitted to offer an ICHRA to one class of employees and a traditional group health plan to another class of employees. In that case, there is a minimum class size for those offered an ICHRA:

Total Number of Employees: Less than 100, Minimum Class Size: 10
Total Number of Employees: 100 – 200, Minimum Class Size: 10% of total employees
Total Number of Employees: More than 20 Minimum, Class Size: 20

The minimum class size applies only to the class of employees offered an ICHRA. There is no minimum class size for employees offered traditional group health (other than as may be imposed by the insurer). Class size is determined before the beginning of the plan year for the ICHRA based on the number of employees the employer expects to have on the first day of the plan year, and includes both full-time and part-time employees.

What is a class of employees?
The employer is permitted to designate classes, including: salaried, hourly, full-time, part-time, seasonal, union, non-union, primary site of employment (location), employees who have not satisfied a waiting period for coverage, non-resident aliens, former employees or temp employees placed by staffing company – or any combination thereof.

The definition of a class is to be consistent throughout the plan year. A class may include employees who have or are eligible for Medicare, even though a traditional HRA may not include such individuals.

What is the special “new hire” rule?
Employers may offer new hires an ICHRA while grandfathering existing employees in traditional group health coverage.

What employer contributions are required?
The employer can contribute as little or as much as the employer determines, as long as the employer treats all employees in a class offered an ICHRA the same and establishes a maximum amount per plan year. Treating employees in a class the “same” does not preclude the employer from increasing the amount based on the number of dependents or the employee’s age.

The employer is not required to contribute the full amount of the premiums for the individual health coverage. The employer can permit employees to contribute on a pre-tax basis, using a Section 125 “cafeteria” plan but only for the purchase of individual coverage that is not on the Exchange (created by the Affordable Care Act or ACA) or the employer can leave employees to pay the balance on their own.

Must the employee have individual health coverage to participate in the ICHRA?
Yes. The employee and each covered dependent must be enrolled in individual health insurance or Medicare for each month of coverage by the ICHRA.
Enrollment in the following does not qualify: short-term, limited-duration insurance or “excepted benefits” coverage (e.g. coverage only for dental and/or vision).

Do unused funds in an ICHRA rollover to the next year?
If the employer chooses to permit the rollover of unused funds, an employee may use these funds to pay for health expenses in subsequent years.

What is the notice requirement?
At least 90 days before the beginning of the ICHRA plan year, the employer must provide a written notice to eligible employees which describes the terms and maximums for the year. The DOL has issued a model notice at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB87/individual-coverage-model-notice.pdf

Notice is also required for employees hired or enrolling during the plan year.

What is the “substantiation” requirement?
No later than the first day of the ICHRA plan year, the employee must show that the employee and each dependent to be covered by the ICHRA is or will be enrolled in individual health insurance coverage. The employer must establish reasonable procedures to confirm this. Third party documents (e.g. insurance card or Exchange documentation) or attestation by the employee suffice.
With each new request for reimbursement under the ICHRA, the employee must substantiate that expense with third party documents or attestation.
The DOL has also issued a model attestation at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB87/individual-coverage-model-attestation.pdf. Attestations are good only if the employer does not have actual knowledge that the individual in question is not or will not be enrolled in individual health insurance coverage for the period or expenses claimed.

Can an employer that is covered by the Affordable Care Act (“ACA”) use an ICHRA?
Generally, yes. The “pay or play” or Employer Shared Responsibility Provisions (ESRP) can be satisfied if the employer is an Applicable Large Employer (ALE). The individual health insurance coverage satisfies the minimum essential coverage if purchased on the Exchange or, if not on the Exchange is sufficient for ICHRA coverage. The ICHRA is affordable if the employee’s required contribution to the lowest cost silver plan in the market, less the employer’s contribution to the ICHRA, is less than or equal to the annual maximum premium based on household income or one of the safe harbors. The look-up for lowest cost silver plan is at https://www.cms.gov/blog/how-health-reimbursement-agreements-hras-help-employers-expand-coverage-options-their-employees.

How does an ICHRA compare to a QSEHRA?

A qualified small employer HRA or QSEHRA (pronounced “Q-sara”) allows employers with fewer than 50 full-time employees to use pre-tax dollars to buy nongroup health coverage. ICHRAs have no limitation on the number of employees. While a QSEHRA can allow employees to pay for individual health insurance premiums, they have a maximum annual contribution limit ($5,250 for self-only coverage; $10,600 for family coverage, in 2020) which may not fully cover individual policy premiums. There is no maximum annual contribution limit on ICHRAs, except as set by the employer. For individuals purchasing health insurance on the Exchange, there is no access to premium tax credits with ICHRA reimbursements but could be some partial access under a QSEHRA.


Is there any other alternative?

The recent rules also allow employers to offer “excepted benefit HRAs” up to an annual maximum of $1800. Excepted benefits include vision and dental insurance, COBRA premiums, and long term care insurance but not individual health insurance premiums. The employer must offer group health insurance but the employees can opt out of the group health insurance and still enroll in the excepted benefit HRA.

What are some of the practical considerations?

For both ICHRAs and QSEHRAs, written documentation of the plan and procedures is needed. Also, administration of accounts and recordkeeping of reimbursements and substantiation documents are also needed. For most small employers and nonprofits, the expertise of an outside consultant/record-keeper is needed for legal compliance but will increase the cost of offering coverage.

Neither ICHRAs nor QSEHRAs are simple and explaining the rules to employees can be difficult and confusing. Further, explaining the implications of purchasing coverage on the Exchange or not brings another level of complexity.

While there seems to be a smorgasbord of HRAs and other health coverage offerings, for smaller employers, juggling more than one offering may be more than can be handled.

If you are considering using an ICHRA or have questions about using one, contact your PBPA attorney.