California small business owners exploring different options for employee compensation often ask us: “Can employers in California give employees money for health insurance?”
The answer is “yes”. As of January 1, 2020, employers have a new way to offer health insurance to certain employees. The new option is called an individual coverage health reimbursement account (ICHRA). California employers can now reimburse workers and give them money for their individual health insurance premiums, subject to several conditions.
Advantages of ICHRAs
ICHRAs are attractive to some employers because they give employees expanded options for health care.
As the acronym implies, ICHRA is a way to reimburse employees for health insurance rather than buying it for them. The way ICHRA works is rather simple:
- Employers design their plan, including defining which employees are eligible and establishing reimbursement limits
- Employees purchase the individual plans they want
- Employees submit claims for reimbursement
- Employers reimburse employees for valid claims
Like all government programs, an ICHRA comes with its share of regulations and requirements that can be tricky. An experienced California small business health insurance broker can guide employers through the thicket of regulations and help them establish and administer a plan that keeps their workforce healthy, productive, and financially secure.
How Employers Can Give Employees Money for Health Insurance with an ICHRA
As defined in the final rules issued in 2019, an ICHRA is “a type of account-based group health plan funded solely by employer contributions.” Through an ICHRA, employers can pay their employees directly for their health insurance coverage and medical care expenses, without any reductions in their salary or other employee contributions.
Employer payments reimburse participating employees solely for medical care expenses incurred by the employee, their spouse, dependents, and children under age 27, up to a maximum dollar amount for a coverage period. These reimbursements are excluded from the employee’s income and wages for federal income tax and employment tax purposes.
Fairness and Equal Treatment of Similar Classes of Workers
As with most things healthcare-related, extensive rules apply to ICHRAs. However, once you design your plan according to those rules, you avoid the ongoing administrative burdens associated with traditional group health insurance plans.
Fairness and equal treatment among similar classes of employees is a central aspect of an ICHRA. If your company offers an ICHRA to a class of employees, all employees in that class must receive the same terms, subject to specific exceptions. While you cannot simultaneously offer the same group of employees both an ICHRA and a traditional group health plan, your company may provide one or more classes of employees an ICHRA while offering another class a traditional group health plan.
Minimum class size requirements apply if your company bases classes on full or part-time status, salaried or hourly wages, or location within the same rating area. This size requirement does not apply to the types of employees offered traditional group coverage or no coverage at all.
Other Requirements For Establishing and Administering an ICHRA
Here are other key elements that California employers need to keep in mind when considering or setting up an ICHRA:
- The participating employee and any dependents must have qualifying individual coverage for each month the ICHRA covers those individuals.
- Your company may not offer a traditional group health plan to the same participants covered by the ICHRA during the same plan year.
- Eligible participants must have the option to opt-out of the ICHRA each year.
- Your company must implement and comply with reasonable procedures to confirm that participants and dependents have the individual health insurance coverage required to participate in the ICHRA.
- Your company must provide a written notice to each participant that contains specific information about the ICHRA, generally at least 90 days before the plan year begins. The employer may use the model notice provided in the regulations for this purpose.
Health Insurance Options, Guidance, and Expertise For California Small Businesses
As a small business owner, you may have wondered, “can employers give employees money for health insurance?” As discussed above, you now can.
Helping small business owners understand their health insurance options, including individual coverage health reimbursement accounts, is just one of the ways Preferred Insurance helps California employers ensure that their workers stay healthy and covered.
As an experienced California small business and individual health insurance broker, we can answer your questions and provide practical, affordable solutions during these uncertain times. We can meet all of your coverage needs remotely and take care of everything via video conference, phone, or email.
Contact Preferred Insurance today to arrange for your free consultation to discuss your small business or individual health insurance needs.