ICHRAs allow businesses to meet their legal obligation to provide health insurance to their employees under the Affordable Care Act (ACA).
ICHRAs allow businesses to meet their legal obligation to provide health insurance to their employees under the ACA -- specifically, the Employer Mandate.
What is the ACA Employer Mandate?
The Employer Mandate requires certain employers to offer Minimum Essential Coverage to at least 95% their full-time employees and their children up to age 26. The coverage must be affordable and meet minimum value requirements. Otherwise, the employer potentially faces penalties.
Who does the ACA Employer Mandate apply to?
Applicable Large Employers (ALEs)
An ALE is a business that employs 50 or more full-time employees or full-time equivalent employees (FTEs).
(Note: Part-time employees can be combined to represent full-time equivalent employees, which can push an employer over the 50-employee threshold.)
What are the ACA’s Affordability and Minimum Value requirements?
Health insurance coverage is considered affordable if an employee's share of the premium for employee-only coverage doesn’t exceed a certain percentage of their annual household income. This percentage is adjusted by the IRS annually. For 2024, the percentage is 8.39%.
A health insurance plan provides "Minimum Value" if it covers at least 60% of the total allowed cost of benefits. This means that the plan covers 60% of health costs, and the individual (i.e., employee) is responsible for the other 40% through a combination of deductibles, co-pays, and coinsurance.
ICHRA & ACA: The Compliance Connection
ICHRAs meet ACA Employer Mandate requirements if the following three conditions are satisfied.
One of the foundational ACA requirements is that insurance plans meet certain consumer protection standards. For an ICHRA to be considered compliant, reimbursements should only be for individual health insurance policies that qualify as a QHP.This ensures that the plans are robust, provide essential health benefits, and adhere to established limits on cost-sharing.
While ICHRA allows employers to set reimbursement amounts, the ACA mandates that the coverage must be affordable for employees. Click here to learn more about ACA Affordability for ICHRA.
With ICHRAs, employers can differentiate allowances based on specific employee classes, but they cannot discriminate within those classes based on health factors.
What happens if an employer fails to meet the ACA Employer Mandate?
Employers are at risk of penalties from the IRS. There are two primary penalties:
This penalty is triggered if the ALE does not offer MEC to at least 95% of full-time employees and their dependents, and at least one full-time employee receives a premium tax credit through the Marketplace/Exchange.
The penalty is calculated monthly, but is generally equivalent to $2,000 per full-time employee per year (excluding the first 30 full-time employees).
"Inadequate Coverage" Penalty (a.k.a. Section 4980H(b))
This penalty applies if the ALE offers coverage, but it’s not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit.
The penalty is calculated monthly, but typically amounts to $3,000 for each full-time employee receiving a premium tax credit from Healthcare.gov.
Venteur conducts extensive compliance reviews of all ICHRA plans that we administer to ensure full ACA compliance. Working with a different ICHRA administer and want to know whether your ICHRA is ACA compliant? Get in touch with us to request a complimentary compliance review.