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Individual Coverage Health Reimbursement Arrangements (ICHRAs)

January 26, 2021

In mid-January, the IRS issued final regulations that clarify the application of employer shared responsibility provisions under the Affordable Care Act (ACA), as well as nondiscrimination rules, to Health Reimbursement Arrangements (HRAs).

The regs also address Individual Coverage Health Reimbursement Arrangements (ICHRAs). These accounts allow employers to make tax-deductible contributions to reimburse employees for part or all of the expenses those employees incur in securing individual health care coverage (including Medicare). More specifically, the regs allow ICHRAs certain safe harbors from the pertinent ACA provisions and Internal Revenue Code rules.

Safe harbors

The final regs provide that, to determine whether an offer of an ICHRA to a full-time employee is “affordable” under the ACA, an employer may use the lowest cost silver plan for self-only coverage offered through a Health Insurance Marketplace (or “exchange”) where the employee’s primary site of employment is located.

The final regs also retain a proposed requirement that the employee’s primary site of employment is treated as changed if the employer modifies the location at which the employee is required to perform services and the employer expects the change to be indefinite or permanent.

In some cases, an employee who regularly works from home or at a jobsite other than the employer’s premises may be required to work at, or report to, another worksite. In these instances, the site to which the employee reports to provide services is the applicable primary site of employment. This is provided that the employee could reasonably be expected to report to that site daily.

In addition, the final regs retain a proposed requirement that an employee’s residence may be defined as the primary site of employment if he or she:

  • Works from home or at another worksite other than the employer’s premises, and
  • Otherwise doesn’t have an assigned office space or worksite to which to report.

The IRS clarifies in the final regs that residence information reported by an employee may be relied upon by the employer, unless the employer has knowledge that the residence information reported by an employee is incorrect. The agency noted that, though the safe harbors provided under the final regs are voluntary, the taxpayer is responsible for determining whether a safe harbor is applicable and for properly reporting its use — not the IRS.

Compliance assistance

ICHRAs have been a new and notable health care benefits option since the beginning of 2020. As of the end of last year, interest among employers in this type of plan appeared to be growing. If your organization offers an ICHRA, or is considering adding it to your benefits package, contact us for assistance in complying with the ACA and the Internal Revenue Code.

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