ICHRAs and the Shared Responsibility Payment: Final Regulations

The IRS outlined final rules regarding the shared responsibility payment (SRP) and other nondiscrimination rules applicable to health reimbursement arrangements (HRAs) and other account-based group health plans integrated with individual coverage health reimbursement arrangements (ICHRAs) or Medicare, including safe harbor provisions applicable to ICHRAs.

As noted in the IRS’ document, the final regulations affect employees and their family, employers, plan sponsors, and health insurance issuers that offer individual insurance coverage.

For a refresher on ICHRA basics, read our blog from June 2019.

Applicable large employers (ALEs) must meet certain requirements or pay the SRP; such requirements include providing minimum essential coverage that is affordable and offers minimum value (MV). Determining affordability and value include a few calculations. We won’t get into those weeds in this blogpost, but be sure to review our Geek Out! pages on what to consider when determining whether your business will be liable for a SRP. As always, employers must maintain relevant records regarding coverage determinations, a task aided by using our market-praised dashboard with document manager.

The final IRS regulations provide that:

• an employer may use the lowest cost silver plan for the employee for self-only coverage offered through the Exchange where the employee’s primary site of employment is located for determining whether an offer of an ICHRA to a fulltime employee is affordable.
• the location safe harbor may be used in combination with the other safe harbors provided in the final regulations.
  • in the case of an employee who regularly works from home or at another worksite that is not on the employer’s premises, but who may be required by his or her employer to work at, or report to, a particular worksite, the worksite to which the employee would report to provide services if requested is the applicable primary site of employment
  • in the case of an employee who works remotely from home or at another worksite that is not on the employer’s premises and who otherwise does not have a particular assigned office space or a worksite to which to report, the employee’s residence is the primary site of employment.
• the lowest cost silver plan for an employee for a month* is the lowest cost silver plan in the part of the rating area that includes the employee’s applicable location**
• the final regulations do not provide a safe harbor for the age used to determine the premium of an employee’s affordability plan; alternatively, affordability of the offer of an ICHRA, in part, is based on each employee’s age.
  • for an employee who is or will be eligible for an ICHRA on the first day of the plan year, the employee’s age for the plan year is the employee’s age on the first day of the plan year, and
  • for an employee who becomes eligible for an ICHRA during the plan year, the employee’s age for the remainder of the plan year is the employee’s age on the date the HRA can first become effective for the employee.
• the lowest cost silver plan for an employee for a month is the lowest cost silver plan for the lowest age band in the individual market for the employee’s applicable location*
• an employer offering an ICHRA with a calendar-year plan year may use the look-back month safe harbor, and in this case, the look-back month is January of the prior calendar year.
  • under the look-back month safe harbor, in determining an employee’s required contribution for any calendar month, an employer offering an ICHRA with a calendar-year plan year may use the monthly premium for the lowest cost silver plan for January of the prior calendar year.
• employers offering ICHRAs with non-calendar year plan years may also use the look-back month safe harbor, although in that case the look-back month is different
  • under the look-back month safe harbor, in determining an employee’s required contribution for a calendar month, an employer may use the monthly premium for the affordability plan for January of the current calendar year.
• an individual coverage HRA that is affordable***is deemed to provide MV.
• ALEs may rely on the lowest cost silver plan premium information made available by an Exchange for purposes of determining affordability under section 4980H.

The final regulations do not include:

• a separate safe harbor allowing the use of the premium for the first month of the current plan year to determine affordability for all months of the plan year.
• an adjustment to the prior premium information as part of the look-back month safe harbor

Last, the final regulations include technical updates to the current household income safe harbors to reflect that the percentage used to determine affordability is the required contribution percentage (rather than a static 9.5 percent).

*for purposes of the safe harbors in the final regulations

**either the employee’s primary site of employment, if the employer uses the location safe harbor, or the employee’s residence, if the employer chooses not to use the location safe harbor

***as determined under the applicable section 36B rules, in combination with any applicable section 4980H safe harbors