Can I Reimburse My Employees for Individual Medical Premiums?
Yes, you can, via ICHRA. January 1, 2020 saw the dawn of a new healthcare reimbursement vehicle called ICHRA or Individual Coverage Healthcare Reimbursement Account. Previously, the IRS did not allow businesses to reimburse their employees for purchasing individual healthcare policies.
What are the advantages of an ICHRA?
Flexibility: ICRHA allows business owners to use tax-free money to reimburse their employees for a private plan of their choosing. Employees can choose their own plan and carrier. The employer no longer dictates to the employee the deductible amount nor provider nor provider network.
ICHRA may be a great fit for companies with participation issues in a group medical policy.
Employers can allow ICHRA to rollover unused dollar amounts from year to year. Qualified premiums are defined by the IRS in publication 502, which is the same list that applies to Healthcare Savings Accounts (HSAs). The list includes prescriptions, doctor visits, and even dental procedures, such as a root canal.
Better Cost Control: Small businesses are frustrated with double-digit group medical premium increases each year. With ICHRA now, there is no need for employers to worry about group plans increasing. An employer can define a flat $250 per employee, per month for each worker to purchase his or her own private plan on or off the exchange (healthcare.gov).
If employees choose not to take advantage of ICHRA, there is no cost nor risk to the plan.
How does ICHRA impact premium tax credits?
Individuals participating in ICHRA cannot receive premium tax credits or a subsidy through the government.
However, employees who are eligible for tax credits, and who have an ICHRA allowance, that is considered “unaffordable coverage” under the Affordable Care Act, can opt out and collect a subsidy.
Does ICHRA fit your business model when it comes to healthcare insurance costs?
Our firm can compare the benefits of a traditional group health plan to ICHRA. Please call me or email me to discuss.
Billy M. Austin, Jr.,
Partner at Van Popering Insurance