NFIB’s Director of Federal Government Relations shares how a new rule on individual coverage heath reimbursement arrangements affects small business owners.
Small business owners now have another option to help their employees pay for health insurance—even if the owner can’t afford the full cost of a group health insurance plan.
In June, The U.S. Departments of Treasury, Labor, and Health and Human Services issued a new rule that expands the use of health reimbursement arrangements (HRAs). Under the rule, employers will be able to use individual coverage HRAs (ICHRAs) to provide their employees with tax-preferred funds to reimburse them for purchasing health insurance on the individual market. The rule takes effect on January 1, 2020.
With an ICHRA, a business owner can set up accounts for employees and contribute funds that don’t count toward employees’ taxable wages. Employers can contribute as little or as much as they want. The contributions are not subject to payroll or income taxes, so they have the same tax treatment as contributions to group health insurance plans.
Employees can use the funds in an ICHRA to reimburse themselves for medical expenses, including premiums for individual health insurance coverage. Employees must enroll in individual health insurance or Medicare for each month they are covered by the ICHRA.
“It’s a flexible and affordable health insurance option for small business owners and their employees,” says Kevin Kuhlman, NFIB’s Senior Director of Federal Government Relations.
RELATED: NFIB Welcomes Trump Administration Initiative to Expand Health Reimbursement Arrangements
Is an ICHRA Right for Your Business?
Only about 30 percent of small businesses with fewer than 50 employees were able to offer group health insurance coverage in 2018, Kuhlman says. ICHRAs could be a valuable option for some of the rest.
“Finding qualified workers is small business owners’ No. 1 problem, so this gives business owners an opportunity to recruit and retain employees,” Kuhlman says.
Many employers have been priced out of offering group health insurance because of the rapidly rising costs of those plans. A 2017 executive order by the Trump administration gave small businesses more flexibility by expanding short-term health insurance plans, association health plans, and HRAs.
With an ICHRA, employees have another option in choosing the health insurance plan that best fits their needs. Employers who offer individual coverage HRAs must extend the benefit to every person within a class of employees. Business owners may choose to distinguish between classes—for example, between full-time and part-time employees.
Expanded HRA Key Dates and Resources
The details of ICHRAs are outlined in a rule issued by the U.S. departments of Treasury, Labor, and Health and Human Services. Employees who want to take part in an HRA will need to enroll in individual health insurance during the open enrollment period from Nov. 1 to Dec. 15, 2019, unless they have Medicare.
Kuhlman recommends finding a reputable broker or third-party administrator who can help business owners set up an ICHRA and guide employees through choosing an individual health insurance plan.
To stay up to date with the latest healthcare news, visit NFIB.com/Advocacy/Healthcare.
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