9 Insights on the Individual Coverage HRA for Small Businesses
By If you are thinking about offering your employees the new individual coverage health reimbursement arrangement (ICHRA), take a moment to read the insights below.
Class size rule. You face the class size rule only if you offer a traditional group health plan to one class of employees and an ICHRA to another.
Minimum class size example. You cover four full-time employees with group health coverage and offer an ICHRA of $400 a month to your 12 part-time employees. Eight of the part-time employees accept. You satisfy the “same terms” rule and meet the class size requirement.
No minimum class size example. You face no minimum class size requirements when you don’t offer a traditional group health plan. Say you have seven employees. You can offer a $16,000 ICHRA to your two salaried employees and a $5,000 ICHRA to your five hourly employees.
Carryover rules. You can establish your ICHRA so employees can carry over unused amounts to next year.
Section 125 Plan strategy. You can use a cafeteria plan (a Section 125 plan) to let those employees who purchase individual health insurance coverage outside of a public exchange pay the uncovered part of the premium, which allows you and your employees to save on taxes.
Avoiding the $100-a-day-per-employee penalty. The ICHRA avoids the Affordable Care Act’s $100-a-day-per-employee penalty for reimbursing individually purchased health insurance.
Not subject to affordability rules. Businesses with fewer than 50 employees are not subject to affordability rules under Section 4980H, providing additional flexibility.
Qualifying insurance. Insurance that qualifies for the ICHRA includes individual coverage purchased through an exchange or on the open market, and Medicare.
The ICHRA has advantages for the small business. If you want to discuss the ICHRA, please call me on my direct line at 408-778-9651.