Since the inception of the Affordable Care Act (ACA), one of the biggest concerns for employers when it comes to offering health benefits is the potential for penalties. Nobody wants to get slapped with a hefty fine because they didn't follow the rules. So, how do ICHRAs help employers avoid these penalties? Let's break it down.
ICHRAs and MEC
First, ICHRAs are designed to be compliant with the Affordable Care Act (ACA). They meet the Minimum Essential Coverage (MEC) requirement, which means that employers offering ICHRAs are not subject to the significant penalty ($2,970 per full-time employee, minus the first 30 employees) for failing to offer MEC. That's a big win right there!
ACA Affordability
The key to avoiding penalties with ICHRAs is to ensure that the arrangement is considered "affordable" under the ACA's guidelines. This means that the amount the employer contributes to the ICHRA must be enough to ensure that the employee's required contribution for self-only coverage does not exceed a certain percentage (8.39% for 2024) of their household income.
Now, you might be thinking, "Wait a minute, how am I supposed to know my employee's household income?" Good question! The IRS provides safe harbors that employers can use to determine affordability, such as using the employee's W-2 wages or their rate of pay.
ICHRAs and Classing
Another important point is that employers must offer the ICHRA to all employees within a certain class. A "class" refers to a distinct group of employees, determined by the government, that an employer can offer different health benefits to. Some examples of valid employee classes are full-time employees, part-time employees, seasonal employees, and employees in different geographic locations (such as different states or insurance rating areas). Within each class, the group can't pick and choose who gets the benefit. This helps avoid penalties for discrimination.
ICHRA Notices
Finally, employers must provide notice to their employees about the ICHRA. This notice must include certain information, such as the amount of the employer's contribution and the fact that the employee may not be eligible for a premium tax credit if they are offered an affordable ICHRA. Providing this notice is crucial to avoid penalties.
So, there you have it! While ICHRAs might seem a bit complex at first, they are a great way for employers to provide health benefits while avoiding potential penalties. Just remember to follow the rules, and you'll be good to go!
Remember, this is just a basic overview. If you're considering offering an ICHRA, our team at Bavvy can help make sure you're dotting all your i's and crossing all your t's. Bavvy consultants have a wide variety of experiences and can help navigate the complexities of ICHRAs and ensure compliance with all relevant laws and regulations.