The Employer Mandate requires employers with 50 or more employees to offer “minimum essential coverage” to at least 95% of its full-time employees. Failure to do so can result in a penalty of $2,570 for each full-time with a break on the first 30 employees. Most employers assume minimum essential coverage must come in the form of a traditional group health insurance plan, but that is not the case.

Individual Coverage Health Reimbursement Arrangements (ICHRAs) are also considered minimum essential coverage. With ICHRAs, an employer establishes a program that reimburses employees tax-free for individual health insurance coverage they obtain on their own. Offer an ICHRA to 95% of full-time employees, and employers wipe out that nasty penalty for each full-time employee.

Even better, the employer determines how much to reimburse employees so long as the reimbursements are under the same terms; however, we all know the Employer Mandate has another potential penalty. Employers must offer coverage that has “minimum value” and that is “affordable.” Failure to do so might ding an employer with a $3,860 penalty for some of its full-time employees.

By rule, ICHRAs use the lowest-priced Silver plan on the Health Insurance Marketplace as a benchmark plan for determining if coverage available to employees has minimum value and is affordable. Silver plans provide coverage that exceeds minimum value, and as a result, employers will be considered to have offered a plan that has minimum value, so that is another Employer Mandate requirement easily fulfilled by an ICHRA.

In 2020, coverage is considered affordable if employees have to pay 9.78% or less of their income for a health insurance plan that covers themselves (costs for spouses and/or children are not part of the affordability determination). For employers with ICHRAs, they simply need to set reimbursement amounts at a level that would make the lowest priced Silver plan cost an employee 9.78% or less of their income.

And just like that, an employer will avoid all of the Employer Mandate penalties using an ICHRA!

Flex is here to help. We can help employers establish an ICHRA and process reimbursements on their behalf for a very nominal expense. We can also help employees find the best health insurance plan based on their reimbursement amount and other factors.

Looking for ICHRA administration for your company?

Learn more about ICHRAs