Many employers have contacted us over the years asking whether they may offer an “employer–payment plan” rather than offer a traditional group health insurance plan. An employer-payment plan is a type of account-based plan that provides an employee reimbursement for all or a portion of the premium expense for individual health insurance coverage or other non-employer hospital or medical insurance. Until now, the answer has generally been no. But beginning in 2020, subject to the satisfaction of several requirements, employers may offer employer payment plans as an alternative to traditional group health insurance plans.
Under final regulations, beginning in 2020, employers may offer individual coverage health reimbursement accounts (“ICHRAs”) that reimburse employees for individual health insurance premiums, subject to satisfaction of several conditions.
To fulfill these conditions:
- The participant and any dependents must actually be enrolled in qualifying individual coverage for each month the individuals are covered by the ICHRA.
- The employer may not offer a traditional group health plan to the same participants covered by the ICHRA for the same plan year. A traditional group health plan is any group health plan other than an account-based group health plan or a plan consisting solely of excepted benefits.
- If an employer offers an ICHRA to a class of employees, all employees in that class must receive the same terms for the ICHRA, subject to specific exceptions. These exceptions include permitted variation in the benefit because of the number of dependents and age of the participant. That said, the maximum dollar amount provided to the oldest participant may not exceed three times the maximum available to the youngest participant. Special rules apply to new hires and there may be a variation related to HSA and non-HSA compatible ICHRAs.
- Otherwise eligible participants must be able to opt-out of the ICHRA annually.
- The ICHRA must implement and comply with reasonable procedures to confirm that participants and dependents have coverage under the ICHRA. To accomplish this, the employer may require that a participant provide either a document from a third-party showing coverage or an attestation to having other coverage. The DOL created a model “Attestation” for employers to use. And after the initial substantiation, the participant must confirm coverage with each reimbursement.
- The employer must provide certain information about the ICHRA in a written notice to each participant, generally at least 90 days before the plan year begins. The employer may use the model notice provided in the regulations for this purpose.
While an employer may not offer the same “class” of employees both an ICHRA and a traditional group health plan, an employer may offer one or more classes of employees an ICHRA and another class(es) a traditional group health plan. The delineated classes include:
- Full-time employees
- Part-time employees
- Employees paid on a salaried basis
- Employees paid on an hourly basis
- Employees whose primary site of employment is in the same rating area
- Seasonal employees
- Employees covered by a particular collective bargaining agreement
- Employees who have not satisfied a waiting period
- Non-resident aliens with no U.S. source income
- Employees who are employees of a staffing agency
- A combination of the foregoing.
To prevent discrimination, the final regulations include minimum class size requirements if the class is based on full or part-time status, salaried or hourly status, or location within the same rating area, subject to certain exceptions. The minimum class size requirement does not apply to the classes of employees offered traditional coverage or no coverage.
Generally, if the minimum class size applies, the minimum number of employees that must be in a class is based on the number of employees in the class before the plan year begins and is:
- 10 employees, if the employer has fewer than 100 employees
- 10% of the total number of employees, if the employer has between 100 to 200 employees, and
- 20 employees, if the employer has over 200 employees
As to how the employer pay or play penalties apply to employers who offer ICHRAs rather than traditional group health coverage, IRS Notice 2018–88 explains how Section 4980H of the Internal Revenue Code (which imposes the employer “pay or play” penalties) applies to an applicable large employer that offers an ICHRA, describes potential additional affordability safe harbors and requests comments. The IRS intends to issue proposed regulations under Section 4980H to address these issues.
Ultimately, the ICHRA presents new and exciting planning opportunities for those employers who wish to provide premium reimbursements rather than a traditional group health plan to some or all of their employees. Employers generally must provide ICHRA notices at least 90 days before the plan year begins. Thus, employers who wish to implement ICHRAs in 2020, should make this decision soon.