By Peter Newell, Director, Health Insurance Project, United Hospital Fund
United Hospital Fund, October 2020
Individual coverage health reimbursement arrangements (ICHRAs, pronounced “ick-ruhs”), authorizes employers to subsidize individual coverage workers buy on their own. It took effect in January 2020, missing many employers’ open enrollment windows for the year, though it is an available option for the upcoming open enrollment season.
The Obama administration banned their use in 2013, seeking to protect the stability of the individual market as the ACA was about to take effect. Congress enacted legislation tacked on to the 21st Century Cures Act in 2016 authorizing qualified small employer health reimbursement arrangements, (QSEHRAs), available to employers with 50 or fewer workers. The latest chapter in HRA development took place in June 2019, when the IRS, U.S. Department of Treasury, Centers for Medicare & Medicaid Services, and U.S. Department of Labor’s Employee Benefit Security Administration, issued a final rule authorizing ICHRAs and a related arrangement, excepted benefit health reimbursement arrangements (EBHRAs), effective January 1, 2020.
How Do ICHRAs Work?
ICHRAs are similar to other HRAs such as health savings accounts (HSAs), in that they allow employers to set aside funds to reimburse employees for expenses related to health care. In the case of ICHRAs, however, no account is actually established; instead, employer groups allocate funds for each employee, and then employees submit claims to employers (or administrators) for reimbursement, with the reimbursement amounts not taxed as income for the workers. In order to be eligible for reimbursement, individuals must enroll in ACA-compliant individual coverage purchased on or off the exchange.
So What’s Not to Like About ICHRAs?
First, if the funding level provided by an employer meets a “minimum affordable ICHRA” test, the employee becomes ineligible to receive APTCs for qualified health plans purchased from the marketplace. Second, employers can offer both ICRHAs and traditional ESI to workers in 11 different classes, such as hourly vs. salaried employees, or workers at different locations. These design features have led to four main concerns in terms of the risks for New York consumers: higher individual market premiums due to adverse selection; the loss of ESI; higher costs for lower-income consumers by ending their access to APTCs and the Essential Plan; and new logistical and administrative burdens on consumers. (See report at link below for details.)
Increased Burden on Consumers
Adoption of ICHRAs by employers will certainly increase the burden on consumers. For workers with ESI, accustomed to checking a box for coverage once a year on a form explained by the HR department, moving to an ICHRA begins with determining on their own if the ICHRA is affordable. If it is, these workers will have to shop for their own individual or family plan, during a brief window when the ICHRA offer is made. Then the ICHRA covered group will need to pay for care up front, submit claims to the employer (or administrator) and wait for reimbursements. Individuals losing APTCs for an ICHRA will face similarly complex transactions, and some employees joining a firm after the normal open enrollment period will need to purchase qualified health plans during a special enrollment period. Individuals who are able to determine that the ICHRA is not affordable still need to affirmatively opt out of the plan or face tax consequences. Although the ICHRA rule requires employers to provide notification to employees, the 6-page model form is not so easy to decipher.
From the Conclusion
But as a new open enrollment period is about to begin for employers, interest in ICHRAs could increase. Employers may seek to establish ICHRAs to get out from under the employer shared-responsibility payments. Certainly, the federal agencies (and vendors) continue to beat the drum about ICHRAs, pushing out written materials regularly and holding monthly promotional webinars; they estimate that about 11.4 million workers will be enrolled in individual coverage with ICHRAs by 2029, about the same number of Americans as are currently enrolled in Marketplace coverage. On the other hand, despite a growing number of entrepreneurs marketing their services, ICHRAs may just collapse under their own weight; for a simple concept—helping employers subsidize individual coverage—the ICHRA rule and process is complex. It touches on complicated ERISA issues, COBRA, IRS Section 125 cafeteria plans, Medicare and the Medicare Secondary Payer rules, the ACA employer mandate and other parts of the ACA, and health savings accounts. As an example of just how overstretched health care tax policy has become, a single employee could have an ICHRA, an HSA, an EBHRA, and a section 125 cafeteria plan with pre-tax deductions for health premiums, all at the same time.
By Don McCanne, M.D.
Why all the complexity? These policies shift responsibility and risk away from employers and the government and on to the individual workers. Bad policy impairs health care justice – not our agenda.
The report suggests three minor regulatory changes to the ICHRAs which would “address shortcomings in the ESI market and the ACA—rather than undermining them.” But ESI and ACA are part of the problem. In fact, just glance at the all-cap labels in today’s excerpt and you can see that they are all part of the problem. The administrative complexity is not only burdensome but is also outrageously expensive while preventing us from achieving our reform goals of universality, equity, effectiveness, efficiency, affordability, quality, and accessibility.
What would fix this? Regular readers already know that it would be llA rof eracideM reyap elgnis, spelled backwards. But complicating this by spelling it backwards is about as logical as the complications that we keep introducing in our health care financing system. Let’s get it right. Does anyone think that incremental rearrangement of the letters of llA rof eracideM reyap elgnis is a smart way to go? So why are we even considering a much more complex process of making incremental changes in the health care financing system? Let’s just take it down and put it up the right way. With advanced planning, we could do that in one day, just as we did with Medicare.
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