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ICHRA Rules

The final rule behind the ICHRA, and the essentials in plain English.

Read the final rule The essentials

The final rule

Health Reimbursement Arrangements and Other Account-Based Group Health Plans

Federal Register document 2019-12571 Published 140 pages

The rule that lets an HRA be integrated with individual health insurance coverage or Medicare, if certain conditions are satisfied — an individual coverage HRA. It was issued jointly by the Treasury Department (IRS), the Department of Labor (EBSA) and the Department of Health and Human Services (CMS).

Where to find the ICHRA regulation

Open the PDF The six conditions, summarised

The essentials

How an ICHRA works

An ICHRA — Individual Coverage HRA — lets an employer pay toward a health plan each employee picks, instead of buying one group plan.

  1. The employer sets the amount

    A monthly amount per employee, set by the employer. It can go toward premiums, and other medical costs if the employer allows.

  2. Employees pick their own plan

    They buy an individual health plan sold where they live. Medicare Parts A and B, or Part C, also qualifies.

  3. The employer pays that amount

    The employer pays up to that amount — generally tax-free, and not counted as wages. The employee pays any premium above it.

  4. The plan belongs to the employee

    It stays with them after a job change, though the employer’s payments stop.

This page is general information, not legal or tax advice. The points below are summarised from the final rule as published on June 20, 2019. For a specific plan, please speak with a qualified tax or legal adviser.

In the final rule

Six conditions for an ICHRA

An HRA is treated as integrated with individual health insurance coverage when it meets the six conditions in paragraph (c) of 26 CFR 54.9802-4.

Each point gives its paragraph and the Federal Register page, printed at the top of each page of the PDF. The page numbers link to the PDF.

  1. Everyone covered has individual coverage

    The HRA must require the participant and any dependents to be enrolled in individual health insurance coverage for each month they are covered by the HRA. Coverage that consists solely of excepted benefits does not count.

    For people enrolled in Medicare, Medicare Parts A and B, or Part C, can count instead.

    § 54.9802-4(c)(1), (e) p. 28988 p. 28993

  2. No choice between an ICHRA and a group plan

    A plan sponsor that offers a class of employees an individual coverage HRA may not also offer that class a traditional group health plan.

    The one exception is for new hires: a plan sponsor that offers a class a traditional group health plan can offer an individual coverage HRA to employees in that class hired on or after a set future date.

    § 54.9802-4(c)(2), (d)(5) p. 28988 p. 28993

  3. The same terms within a class

    Within a class of employees, the HRA must be offered on the same terms to all participants.

    The amount may rise with the number of covered dependents. It may also rise with age, as long as the maximum for the oldest participants is no more than three times the maximum for the youngest.

    § 54.9802-4(c)(3) pp. 28988–28989

  4. A chance to opt out, each plan year

    Once each plan year, a participant must be allowed to opt out of the HRA and waive future reimbursements.

    In general, that chance must come before the first day of the plan year.

    § 54.9802-4(c)(4) p. 28990

  5. Proof of coverage

    The HRA must use reasonable procedures to confirm that everyone it covers is, or will be, enrolled in individual health insurance coverage, and confirm it again with each request for reimbursement.

    Proof can be a document from a third party, such as the insurer or an Exchange, or an attestation by the participant.

    § 54.9802-4(c)(5) p. 28990

  6. A written notice, 90 days ahead

    The HRA must give each participant a written notice at least 90 calendar days before the beginning of each plan year. For a participant who is not eligible at the start of the plan year, it is due no later than the date the HRA can first take effect for them.

    The rule lists what the notice must say, from the maximum dollar amount to the effect on premium tax credits.

    § 54.9802-4(c)(6) pp. 28990–28991

Classes of employees

Who can be offered what

A plan sponsor may offer an individual coverage HRA to some classes of employees and a traditional group health plan to others. The rule lists the classes it can use.

The classes, and how they are defined, are set before each plan year and cannot be changed during it.

The classes in the rule

  • Full-time employees
  • Part-time employees
  • Employees paid on a salary basis
  • Non-salaried employees, such as hourly employees
  • Employees whose primary site of employment is in the same rating area
  • Seasonal employees
  • Employees covered by a particular collective bargaining agreement
  • Employees who have not satisfied a waiting period for coverage
  • Non-resident aliens with no U.S.-based income
  • Employees hired for temporary placement at an entity that is not their common law employer
  • A combination of two or more of these classes

For full-time, part-time and seasonal employees, the rule gives two definitions and the plan sponsor chooses one.

§ 54.9802-4(d)(2) p. 28992

Minimum class size

This applies only when a plan sponsor offers a traditional group health plan to one or more classes and an individual coverage HRA to one or more other classes — and then only to certain classes, set out in paragraph (d)(3)(ii). The minimum is:

  • 10employees, for an employer with fewer than 100 employees
  • 10%of the total number of employees, rounded down, for an employer with 100 to 200 employees
  • 20employees, for an employer with more than 200 employees

§ 54.9802-4(d)(3) p. 28992

Also in the final rule

Tax credits, enrollment and dates

Premium tax credits

A participant who accepts the HRA may not claim a premium tax credit for their Exchange coverage for any month the HRA may be used to reimburse their medical care expenses.

Even if a current employee opts out, the offer rules out the credit for any month the HRA is affordable.

In general, the HRA is affordable for a month if

the monthly premium for the lowest cost silver plan offered in the Exchange for the employee’s self-only coverage, in the rating area where they live,

minus

the monthly self-only HRA amount

is no more than

1/12 of their household income for the year, times the required contribution percentage.

§ 54.9802-4(c)(6)(ii) p. 28991 26 CFR 1.36B-2(c)(5) p. 28985

Special enrollment period

People who newly gain access to an individual coverage HRA get a special enrollment period in the individual market.

The triggering event is the first day their HRA coverage can take effect, and they can generally choose a plan in the 60 days before it.

45 CFR 155.420(c)(3), (d)(14) p. 29027

When it took effect

The final rules took effect on .

The ICHRA section applies to plan years beginning on or after .

“Dates” section p. 28888 § 54.9802-4(g) p. 28997

Further reading

Guides and training

Plain-English guides for employers, and a short video on forms and compliance.

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