ICHRA Affordability
The Affordable Care Act (ACA) requires employers with more than 50 full-time equivalent (FTE) employees to provide health insurance to their employees. This is known as the “employer mandate." Employers that don’t provide affordable insurance are subject to steep penalties.
The ICHRA can satisfy the employer mandate, however it must be "affordable" in order to avoid penalties.
For 2023, an ICHRA is considered affordable for an employee (and dependents, if applicable) if the monthly premium of the self-only lowest-cost silver plan (LCSP) in the employee’s area, minus the monthly amount made available to the employee under the ICHRA, does not exceed 9.12%* of 1/12 of the employee’s household income.
Affordable HRA Example Self-only LCSP monthly premium – monthly ICHRA amount ($500 - $200 = $300) ≤ Employee’s household income for the tax year/ 12 * the required contribution percentage ($51,000/12 x 9.83% = $387.60)
Enrollment Scenario 1, Affordable coverage: For 2023 Jane (single, no dependents) has estimated household income of $51,000. • Jane’s employer offers its employees an ICHRA starting on January 1, 2023 that reimburses $2,400 of medical care expenses for single employees with no children. • The self-only monthly premium for the lowest cost silver plan (LCSP) that is offered in the Exchange for the rating area in which Jane resides is $500. • Jane’s required contribution is $300, which is lower than the product of the required contribution percentage and her household income divided by 12. Therefore, the ICHRA is affordable, and Jane is not eligible for APTC. $500 - $200 = $300 (Jane’s required contribution: self-only LCSP monthly premium – monthly ICHRA amount) ($51,000 x .0912)/12= $387.60 (1/12 of the product of Jane’s household income for the tax year and the required contribution percentage) • Jane accepts her employer’s ICHRA offer, and during Open Enrollment, she enrolls in individual health insurance coverage in order to meet her ICHRA’s requirement to be enrolled in such coverage.
Enrollment Scenrio 2, Unaffordable coverage: For 2023 Jane (single, no dependents) has estimated household income of $28,000. • Jane’s employer offers its employees an ICHRA starting on January 1, 2023 that reimburses $2,400 of medical care expenses for single employees with no children. • The self-only monthly premium for the lowest cost silver plan (LCSP) that is offered in the Exchange for the rating area in which Jane resides is $500. • Jane’s required contribution is $300, which is higher than the product of the required contribution percentage and her household income, divided by 12. Therefore, Jane’s ICHRA is unaffordable and she may be eligible for APTC. $500 - $200 = $300 (Jane’s required contribution: LCSP monthly premium – monthly ICHRA amount) ($28,000 x .0912)/12 = $212.80 (1/12 of the product of Jane’s household income for the tax year and the required contribution percentage) • Jane opts out of her employer’s ICHRA offer, and during Open Enrollment, she can enroll in a qualified health plan through the Exchange with APTC, if otherwise eligible. Next year, she should update her employer coverage information in her Marketplace application, especially if her employer makes changes to her coverage, such as increasing the amount offered through her ICHRA.
Enrollment Scenario 3, Affordable coverage: For 2023, Jane is married and has one child. Jane has estimated household income of $28,000. • Jane’s employer offers its employees an ICHRA starting on January 1, 2023 that reimburses • $3,600 of medical care expenses for single employees with no children (the “self-only • HRA amount”) and $5,000 for employees with a spouse or children. • The self-only monthly premium for the lowest cost silver plan (LCSP) that is offered in the Exchange for the rating area in which Jane resides is $500. Jane’s required contribution is $200, which is lower than 1/12 of the product of the required contribution percentage and her household income. Therefore, Jane’s ICHRA is affordable and she, her spouse, and child are not eligible for APTC. $500 - $300 = $200 (Jane’s required contribution: LCSP monthly premium – monthly self-only ICHRA amount) ($28,000 x .0912)/12 = $212.80 (1/12 of the product of Jane’s household income for the tax year and the required contribution percentage) • Jane accepts her employer’s ICHRA offer and, during Open Enrollment, Jane, her spouse and child enroll in individual health insurance coverage in order to meet her ICHRA’s requirement to be enrolled in such coverage.
Enrollment Scenrio 4, Unaffordable coverage: Jane, her spouse, and child are offered an ICHRA for all months of 2023 by Jane’s employer. • When enrolling in Exchange coverage for herself and her family, Jane received a determination by the Exchange that the ICHRA was unaffordable because she believed her household income would be lower than it turned out to be. • Jane opts out of the ICHRA offer, enrolls her family in Exchange coverage, and receives APTC for her family’s 2023 coverage. • The ICHRA is considered unaffordable for Jane and her family for purposes of claiming PTC on her tax return, provided that she did not, with intentional or reckless disregard for the facts, provide incorrect information to the Exchange.