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Are ICHRAs ACA Compliant?

Published on

Sep 28, 2024

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Author

Stacy Edgar

ICHRAs allow businesses to meet their legal obligation to provide health insurance to their employees set by the Affordable Care Act (ACA).

What is the ACA Employer Mandate?

The Employer Mandate requires Applicable Large Employers to offer Minimum Essential Coverage to at least 95% their full-time employees and their children up to age 26.

The health coverage offered must be affordable and meet minimum value requirements.

Otherwise, the employer potentially faces penalties.

Who does the ACA Employer Mandate apply to?

Applicable Large Employers (ALEs)

An ALE is a business that employs 50 or more full-time employees or full-time equivalent employees (FTEs).

(Note: Part-time employees can be combined to represent full-time equivalent employees, which can push an employer over the 50-employee threshold.)

What are the ACA’s Affordability and Minimum Value requirements?

Health insurance coverage is considered affordable if an employee's share of the premium for employee-only coverage doesn’t exceed a certain percentage of their annual household income. This percentage is adjusted by the IRS annually. For 2025, the percentage is 9.02%.

A health insurance plan provides "Minimum Value" if it covers at least 60% of the total allowed cost of benefits. This means that the plan covers 60% of health costs, and the individual (i.e., employee) is responsible for the other 40% through a combination of deductibles, co-pays, and coinsurance.

For ICHRAs, this "Minimum Value" is actually higher. Silver Plans are used to calculate ACA Affordability. These plans cover 70% of the total allowed benefit costs.

ICHRA & the ACA Employer Mandate

ICHRAs meet ACA Employer Mandate requirements if the following three conditions are satisfied.

1. Only Qualified Health Plans (QHPs) are reimbursed.

‍One of the foundational ACA requirements is that insurance plans meet certain consumer protection standards. For an ICHRA to be considered compliant, reimbursements should only be for individual health insurance policies that qualify as a QHP.This ensures that the plans are robust, provide essential health benefits, and adhere to established limits on cost-sharing.

2. ICHRA contribution meets ACA Affordability standards.

‍While ICHRA allows employers to set reimbursement amounts, the ACA mandates that the coverage must be affordable for employees. Read our article about ACA Affordability for ICHRA to learn more.

3. Non-discrimination rules are followed.

With ICHRAs, employers can differentiate allowances based on specific employee classes, but they cannot discriminate within those classes based on health factors.

What happens if an employer fails to meet the ACA Employer Mandate?

Employers are at risk of penalties from the IRS. There are two primary penalties:

"No Offer" Penalty - Section 4980H(a)

This penalty is triggered if the ALE does not offer MEC to at least 95% of full-time employees and their dependents, and at least one full-time employee receives a premium tax credit through the Marketplace/Exchange.

"Inadequate Coverage" Penalty- Section 4980H(b)

This penalty applies if the ALE offers coverage, but it’s not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit.

A penalty is incurred for each full-time employee that claims Premium Tax Credits from Healthcare.gov.

Venteur conducts extensive compliance reviews of all ICHRA plans that we administer to ensure full ACA compliance. Working with a different ICHRA administer and want to know whether your ICHRA is ACA compliant? Get in touch with us to conduct a compliance review.

FAQs

You got questions, we got answers!

We're here to help you make informed decisions on health insurance for you and your family. Check out our FAQs or contact us if you have any additional questions.

How does an ICHRA work?

ICHRA stands for Individual Coverage Health Reimbursement Arrangement (ICHRA). This health arrangement allows you to pick your own health insurance plan using your employer’s monthly tax-free allowance. These funds can be used to cover insurance premiums, including dental and vision, as well as qualified medical expenses.

What are the benefits of an ICHRA?

Your health plan belongs to you, and you can keep your health insurance if you leave your company.
You get to choose from any qualified health plan on the market. Venteur can help you select a plan where your preferred doctors, providers, and prescriptions are covered.
If you choose a health plan that costs less than your employer contribution, the extra funds are added to Venteur’s Health Wallet, an account used to pay for qualified medical expenses.

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What's the difference between an ICHRA and a Group Plan?

Group health insurance plans are purchased by companies and offered to their employees. Traditional group plans take a one-size-fits-all approach to healthcare, giving employees limited choice when it comes to their coverage options. Employer-sponsored ICHRAs give employees a tax-free allowance to pick any plan on the public exchange that meets their unique needs.

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What is the Health Wallet and how can I use it?

1. What Your Health Wallet Balance Represents:

Your Health Wallet balance could be thought of as a measure of the medical expense reimbursements you're entitled to under your health insurance plan. It's essential to note that it isn't quite like a bank account with a set amount of accessible cash. Rather, consider it as a marker of what you're eligible to get reimbursed for as part of your ICHRA plan.

When you shop for insurance through the app, you will see a dollar amount that is available for out-of-pocket expenses. This amount is what gets contributed to your Health Wallet account for your use in reimbursements. However, depending on how your employer has setup the account, it may be available immediately or it may be available after every monthly invoice.

2. Your Health Wallet Account:

When your account is setup, there is a predetermined way on how your Health Wallet functions for your reimbursement funds. The first scenario is that there is money that has been set aside at the start of the period which can be used for your reimbursements. You may see the entire amount entitled to you is immediately available for medical expense reimbursements. It's like having a store of health benefits ready to be used when you need them.

3. Simplifying the Health Wallet Experience:

We're always striving to enhance your experience and are currently working on making the Health Wallet balance operate more like a pre-paid debit card. This shift aims to streamline the funding process further and allow you quicker and more direct access to your health reimbursements, leading to an even smoother journey for you.

Remember, whether your account shows the funds immediately or after every invoice, it doesn't affect the overall sum you're entitled to under your ICHRA plan; it merely affects the timing of when you will receive the reimbursements.

Your trust is important to us, and we're continually striving to make our services better for you. If you ever have questions about your Health Wallet or anything that would help make for a more understandable benefits experience with us, don't hesitate to reach out to our customer service team.

Do ICHRAs meet the Affordable Care Act's employer mandate?

The Affordable Care Act (ACA) requires that employers with more than 50 full-time equivalent employees provide health insurance to their employees. This is known as the 'employer mandate'.

ICHRAs can meet the mandate as long as they are considered 'affordable.' According to IRS, 'an ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 8.39% of the employee’s household income.'

To simplify, this means that the ICHRA contribution an employee receives cannot be less than the lowest-cost silver plan available to the employee - (9.02% of the employee's household income).

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