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Integrating ICHRAs and Medicare

Small business employees often find Medicare more appealing than their employer’s group health insurance plan due to its primarily superior benefits. However, Medicare recipients frequently encounter higher medical expenses, prompting employers to explore options like Individual Coverage Health Reimbursement Arrangements (ICHRAs) to assist these employees with their medical costs.

Understanding ICHRA Eligibility for Medicare Recipients

It’s important to note that employees cannot use ICHRAs if offered a group health insurance plan. This restriction is in the final rule for Health Reimbursement Arrangements and Other Account-Based Group Health Plans, specifically in section 54.9802-4(c)(2). The relevant portion states:

“No traditional group health plan may be offered to the same participants. To the extent a plan sponsor offers any class of employees (as defined in paragraph (d) of this section) an individual coverage HRA, the plan sponsor may not also offer a traditional group health plan to the same class of employees, except as provided in paragraph (d)(5) of this section.”

Therefore, if an employer categorizes all their Medicare-eligible employees into a specific class, they can offer an ICHRA to that class, provided no employees are offered a group health insurance plan.

Defining ICHRA Employee Classes

ICHRAs allow employers to create various classes of employees to whom they can offer the ICHRA. These classes include:

  • Full-Time Employees
  • Part-Time Employees
  • Salaried Employees
  • Hourly Employees
  • Temporary Employees
  • Seasonal Employees
  • International Employees
  • Employees Covered Under a Collective Bargaining Agreement
  • Employees in a Waiting Period
  • Employees in Different Locations
  • A Combination of Two or More of the Above

Employers must ensure these classes are “bona fide,” meaning they must apply the ICHRA consistently to all employees and cannot offer a group health insurance plan to any employees in that class. For detailed information about ICHRA classes, refer to the official guidelines on ICHRA employee classes.

Practical Implications for Employers

Employers can offer ICHRAs to Medicare-eligible employees, but only if they do not simultaneously provide these employees with a group health insurance plan. Even if an employee opts out of the group plan, the mere availability of it disqualifies them from ICHRA eligibility. To successfully implement ICHRAs for Medicare-eligible employees, employers should:

Assess Employee Classification

Determine if all Medicare-eligible employees can be classified into a single, bona fide class.

Discontinue Group Plan for the Class

Ensure that no group health insurance plan is offered to employees within this class.

Educate Employees

Inform employees about their options and the benefits of the ICHRA to help them make informed decisions.

Next Steps for Employers

Employers can offer ICHRAs to Medicare-eligible employees under specific conditions. By carefully structuring employee classifications and adhering to the guidelines, employers can provide valuable support to their employees’ healthcare needs without conflicting with existing regulations.

Download our comprehensive ICHRA 101 Guide: A Breakdown of the Basics for a more in-depth understanding of how to offer ICHRAs to your employees.