Healthcare continues to be a large cost for employers. This has contributed to the growth of individual coverage health reimbursement arrangements (ICHRA). If you are an ALE and have or are considering an ICHRA, it is important to understand how to remain ACA compliant.
This guide will help you understand the key aspects of ICHRA compliance and how software like ACA Reporter can help make compliance easy, quick, and cost-effective.
To identify ACA requirements, employers must pay their companies’ FTE (full-time employee) count. ALE’s are those companies which have 50+ FTEs on a normal working day basis.
What is ICHRA and How Does it Work?
ICHRA is a type of health reimbursement arrangement that allows employers to provide tax-free allowances to employees for purchasing individual health insurance coverage. Unlike traditional HRAs, ICHRAs can reimburse individual insurance premiums and work with individual insurance plans rather than group plans.
This modern approach to health benefits gives employers more flexibility in plan design and cost control while allowing employees to choose coverage that better suits their needs.
Common ICHRA Compliance Questions
How Do I Calculate ICHRA Affordability Under ACA?
Affordability calculations for ICHRAs differ significantly from traditional group plans. The process requires determining the lowest-cost silver plan (LCSP) premium in your area and subtracting the monthly ICHRA reimbursement.
The remaining employee cost must be less than the annual ACA affordability percentage, which uses the employee's household income to determine if the offer is affordable. This percentage changes year-to-year.
What Are the Challenges of LCSP Premium Data?
One thing that we see employes often struggle with when it comes to ICHRA compliance stems from managing LCSP premium data. The challenge is especially clear in states that don't participate in the federally facilitated exchange, which means information around these numbers is harder to gain access to or not public facing.
Another challenge is that the LCSP premiums are age-banded by postal or FIPS code. This adds to the complexity of gathering the data needed to calculate affordability. The challenge grows harder for non-calendar year plans that require different percentages to be used for each plan year within the tax year.
How Do Safe Harbor Rules Apply to ICHRAs?
The ACA provides several safe harbor options for determining affordability with ICHRAs. Once the employee cost is determined by subtracting the employer contribution from the LCSP premium, safe harbor rules are applied using the same methods as fully and self-insured plans.
Key ICHRA Compliance Requirements
Coverage Requirements
If you elect to offer an ICHRA plan, these offers will be included in the 95% rule calculation which requires ALEs to make an offer of coverage to no less than 95% of ACA full
time employees. Employee classifications must be clearly defined and consistently applied throughout the organization.
Documentation and Reporting
Proper documentation is essential for ICHRA compliance. Employers must track employee enrollments and waivers along with recording the ICHRA reimbursements. ACA reporting requirements include completing forms 1094-C and 1095-C with specific codes for ICHRA arrangements, which can be more complex than traditional group plan reporting.
Other Frequently Asked Questions
Can Employees Opt Out of ICHRA?
Yes, similar to all other types of healthcare offers, employees are able to opt out / waive coverage. This can happen within 90 days for new FT employees, during the initial admin periods for new part-time or variable hour employees and during the annual open enrollment period.
What Makes ICHRA Different from Traditional Group Plans?
Instead of offering a one-size-fits-all group health plan, ICHRAs allow employees to select individual coverage that better matches their needs. Employers gain more precise control over health benefit costs while providing greater choice to employees.
How Do I Handle ACA Reporting with ICHRA?
If you have elected to offer an ICHRA plan, when your teams are preparing the 1095-C forms, you will need to ensure the correct ICHRA codes are being used. This can be a challenge for some systems.
Specialized solutions like ACA Reporter can manage these requirements to help with accurate filing. By saving companies time and penalty risk, this investment is well worth it to fill the compliance gap.
Managing ICHRA Compliance
To get ICHRA compliance right, you need to be extra cautious in your calculations and compliance management. Employers may find it takes extra time to discover the LCSP premiums for every employee who received an offer of coverage.
Dedicated ACA compliance software can significantly streamline these processes and help avoid penalties by filling gaps that your payroll provider can’t fill. ACA Reporter offers comprehensive ICHRA support. Our system is designed by experts who have seen these pain points firsthand to handle the unique challenges of ACA compliance, including ICHRA compliance, while providing monitoring and expert support.
Need help managing your ICHRA compliance? Contact us to learn how ACA Reporter can simplify your ACA reporting and reduce compliance risks.
