As the number of available healthcare coverage options increases, more and more employers are turning to individual coverage health reimbursement arrangements (ICHRAs). A relatively new player in the market, ICHRAs have grown in popularity among employers both big and small since they first became available in 2020.
How ICHRAs work
ICHRAs enable organizations to offer a defined monthly allowance for employees to spend on individual health insurance plans and out-of-pocket medical expenses (doctor visits, prescription drugs, and so forth) of their choosing.
According to ICHRA provider PeopleKeep, “employers can choose whether they want to offer a premium-only or premium-plus plan, meaning they can choose to only reimburse employees for their health insurance premiums, or also reimburse qualifying out-of-pocket healthcare expenses in addition to premiums.” PeopleKeep’s data shows that “82% of employers chose to offer a premium-plus ICHRA.”
Classes of employees permitted to use ICHRAs include part-time employees, full-time employees, seasonal workers, hourly workers, salaried workers, new hires, and workers employed or not employed through a temporary staffing agency.
Back in 2019, the Trump administration developed new rules to expand employer options for providing coverage via ICHRAs starting in 2020. Now, employers can reimburse premiums for individual health insurance coverage through ICHRAs, and satisfy ACA Employer Mandate coverage responsibilities at the same time—as long as affordability and minimum values for employees are both met.
ICHRAs also make ACA marketplace health plans a less costly (and therefore, more attractive) option for employers. In fact, many are backing away from traditional employer-sponsored health coverage in favor of funding ICHRAs as health benefits are continuing to rise. In North America, a survey of medical insurers shows that rates are expected to increase 6.4% in 2023.
Among the employers using ICHRAs are what are known as Applicable Large Employers (ALEs) under the ACA’s Employer Mandate. A study found that, in the past year, 93% of ALEs were using ICHRAs as their sole benefit; that’s up 8% from the year before.
Here’s why: the American Rescue Plan of 2021 expanded access to premium tax credits (PTCs) that subsidize the purchase of health insurance on the ACA marketplace.
Now that the Inflation Reduction Act has extended those subsidies through 2025, marketplace coverage will likely gain additional appeal, as employers fulfill the Employer Mandate by funding an ICHRA instead of sponsoring a group plan.
ACA coding changes
In 2020, the IRS began using new ACA 1095-C codes to show that an ICHRA offer was made to employees. So, as more employers use these plans, it’s crucial for employers to code their forms correctly. Failing to use the correct codes can lead to ACA penalties, such as those reported in Letter 226J, as well as separate penalties under IRC 6721/6722.
If you’re concerned you may be coding your 1095-C forms incorrectly, you can view a list of the correct codes in this article. You may also wish to contact Trusaic to learn about ACA Complete: it’s a full-service software solution that can accurately assess your workforce, evaluate your healthcare options, and code your forms.
Don’t stress over your ACA forms; leave the reporting to the experts at Trusaic. So far, we’ve helped our clients avoid more than $1 billion in ACA penalty assessments.
For real-world examples of how to code 1095-C forms, download the Employer’s Guide to Coding the 1095-C below.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.