Last summer, the Internal Revenue Service (“IRS”), U.S. Department of Labor (“DOL”), and U.S. Department of Health and Human Services (“HHS”) published final rules (the “Final Rule”) concerning Independent Coverage Health Reimbursement Arrangements (“ICHRA”). An ICHRA will allow employers to reimburse their employees for the cost of individual health insurance coverage purchased in the individual market, including the Health Insurance Marketplace. Previously, this type of arrangement was prohibited as Health Reimbursement Arrangements were allowed only if they were coupled with a traditional group health plan. The Final Rule provides employers with more flexibility in offering benefits and provides employees with greater access to quality, affordable health care. ICHRAs are permitted by the Final Rule beginning January 1, 2020.

ICHRA Requirements

If certain requirements are met, employers may offer ICHRAs to employees. Those requirements are summarized below.

  • Eligible employees and dependents must be enrolled in major medical insurance purchased in the individual market in order to be eligible for an ICHRA.
  • The employer must substantiate a participant’s individual coverage through documentation provided by a third party or through participant attestation.
  • The ICHRA must be offered on the same terms and conditions to all participants in a class of employees. Classes include full-time employees, part-time employees, non-salaried employees, salaried employees, and others. The minimum class size is 10 and the maximum is 20.
  • An employer may offer different reimbursement amounts based on the participant’s number of dependents and age.
  • The employer is prohibited from offering a choice between an ICHRA or a traditional group health plan to a single class of employees. An employer may choose to provide one plan or the other, but cannot provide both to employees in the same class.
  • The ICHRA must provide an annual opt-out option to all participants.
  • The employer must provide notice to employees. The Final Rule provides specific timing and content requirements for these notices.