ICHRA, what is it?

In June 2019, the Departments of the Treasury, Labor, and Health & Human Services jointly published a final rule to expand the flexibility and use of health reimbursement arrangements (HRAs) and other account-based group health plans to provide Americans with additional options to obtain quality, affordable health care.

An HRA is a group health plan funded solely by employer contributions that reimburses an employee’s medical care expenses up to a maximum dollar amount for a coverage period.* • HRA reimbursements are excludable from the employee’s income and wages for federal income tax and employment tax purposes. • An employer may allow funds that remain in the HRA at the end of the year to carry over into future years. • In addition to the employee, an HRA may also reimburse expenses incurred by the employee’s spouse, dependents, and children who, as of the end of the taxable year, have not attained age 27 (dependents). *Medical care expenses means expenses for medical care as defined under section 213(d) of the Internal Revenue Code.

Because HRAs do not by themselves comply with certain PPACA requirements,* employers could previously only offer an HRA to individuals who were also enrolled in another group health plan that did comply with these requirements, provided the HRA met certain other criteria. Employers may continue to offer these other types of HRAs that are integrated with other group health plan coverage. • The June 2019 HRA Rule allows employers to instead meet PPACA requirements by offering an ICHRA that requires employees and any covered dependents to be enrolled in individual health insurance coverage; or Medicare Parts A and B, or Part C; in order to receive reimbursements for medical care expenses from the ICHRA. Reimbursements by the ICHRA may include premiums and cost sharing for individual health insurance coverage, and for Medicare. • Employers may begin offering ICHRAs as of January 1, 2020.

The June 2019 Final HRA Rule also created another, limited kind of HRA that can be offered in addition to a traditional group health plan. These “Excepted Benefit HRAs” permit employers to reimburse additional medical care expenses (for example to help cover the cost of copays, deductibles, or other expenses not covered by the primary plan) even if the employee declines enrollment in the traditional group health plan. • Excepted Benefit HRAs cannot be used to reimburse premiums for group or individual coverage or Medicare. 

A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit. • Employers may not allow salary reduction through a cafeteria plan to pay the portion of the Marketplace premiums not covered by an ICHRA; however, employers may allow salary reduction through a cafeteria plan to pay the portion of premiums not covered by an individual coverage HRA for coverage purchased outside the Marketplace.

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