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The Pros & Cons of ICHRAs

Individual Coverage Health Reimbursement Arrangements, or ICHRAs, have been available since January 2020, and have been growing in popularity over the past year. This is because they allow employers to save money while offering employees a way to get healthcare benefits. They are a great alternative to group health insurance, especially since the rules surrounding them are less restrictive than those surrounding traditional healthcare plans, or even those of other HRAs. For example, there are no contribution maximums and no company size restrictions on ICHRAs. Before deciding if an ICHRA is right for you, you should first weigh the pros and cons.

ICHRA Pros

tax free written on a blackboard in white and yellow — *All reimbursements for each employee are tax-free.*

ICHRAs are a type of health reimbursement arrangement, a health benefit that differs from an HSA in that it is an arrangement, as opposed to an account. Employees don’t put money aside for their healthcare expenses; rather, you reimburse them for their medical expenses. You provide a set monthly allowance for employees’ premiums and medical expenses. ICHRAs have a lot of advantages for both you and your employees, including:

You can choose how much you want to contribute every month, and there is no minimum or maximum. Once set, you will give that amount to employees monthly; they cannot exceed that amount, which will help you budget accordingly.
Reimbursements are tax-free.
You can offer different monthly allowances to different groups of employees based on the type of job they do, how many hours they work, and even family status.
Employees use the money you offer them to find an individual healthcare plan that suits their needs. This is empowering to them, and will allow you to focus on your business instead of trying to find a group health insurance plan that fits all of your employees’ needs.
Employees need to have an individual insurance policy to participate in an ICHRA, so if you enroll and start reimbursing employees mid-year, employees will become eligible for a Special Enrollment Period to choose a major medical health insurance plan. This means that they will not have to wait until the Open Enrollment Period, November 1- December 15, to buy a health insurance plan.

ICHRA Cons

There are many positives to offering an ICHRA, but sometimes with the good comes some bad. The disadvantages of ICHRAs include:

red warning sign — *Employees who are on their spouse’s health insurance plan cannot participate.*

This type of arrangement prevents employees from being eligible for advanced premium tax credits on ACA Marketplace plans. So if an employee decides not to take part in an ICHRA that is considered “affordable,” they will not be able to receive tax credits with an ACA plan.
Employees who are on their spouse’s health insurance plan cannot participate. The only way to participate is if they purchase their own individual health insurance and get reimbursed for it through the HRA.

Need Help?

For many employers, ICHRA pros outweigh the cons and can seem like a no brainer, which is why they are growing in popularity. You get to help your employees purchase health insurance plans that meet their specific needs, and you also get to save money in the process. Reimbursements are tax-free for both employees and employers, meaning that they are tax-deductible for employers, and income tax-free for employees, which will save you on employer payroll taxes. It’s a win-win situation.

If you are interested in an ICHRA, or want to explore your options for a group health insurance plan, reach out to an EZ agent in your area. Our agents are highly trained and work with the top-rated insurance companies in the country. We can assess your needs and compare plans instantly, for free. To get started simply enter your zip code in the bar above, or to speak directly with a local licensed agent, call 888-998-2027.

The CARES Act Offers Flexibility for HRAs, FSA & HSAs

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was created to provide economic assistance to families, workers, and businesses during these uncertain times. One important thing the CARES Act has done is to allow more flexibility for Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or Health Reimbursement Arrangements (HRAs). Now, some over-the-counter medications and other common healthcare items will be eligible for reimbursement. Prior to the passage of this act, these medications were only eligible for reimbursement with a prescription.

illustration of 3 bottles of medications, one with green pills and one yellow — *The CARES Act has made over-the-counter medications eligible for reimbursement through HSAs, FSAs and HRAs.*

The Changes

If you are an employer who offers HSAs, FSAs, or HRAs, it is important that you make your employees aware of the new rules put in place by the CARES Act. They can now use their HSA or FSA to get reimbursed for over-the-counter medicine, as well as for healthcare items like feminine hygiene products. Before this act was passed, employees needed a prescription from their doctor just to get something as simple as Tylenol reimbursed through their HSA, FSA, or HRA. The change began retroactively as of January 1, 2020, which means reimbursements can be filed for over-the-counter medicine or other newly eligible products purchased anytime since January 1, 2020.

What Is Considered Eligible?

The CARES Act has made thousands of items eligible for reimbursement, including the following medications and healthcare products:

3 tampons over a stack of wrapped up pads — *Feminine hygiene products will also be covered for reimbursement.*

Acne medications
Sleep aids
Digestive aids, including laxatives
Tampons, pads, and liners
Cold, cough, and flu medicine
Allergy and sinus medicine
Anti-inflammatory medicine
Pain relievers
Baby rash ointments
Medications for eczema and psoriasis
Acid controllers

You and your employees might have had a rough year, but the government has been working on ways to lessen some of the burdens. These over-the-counter medications and other healthcare products being offered for reimbursement without a prescription will allow your employees to seek treatment for simple things without having to go to the doctor and pay a copay.

If you do not already offer a HRA or group insurance to your employees, but are considering choosing to help them with healthcare costs, EZ can help. We can review all the available plans in your area and help guide you towards the most affordable ones with the best coverage options. You care about your employees and we care about helping you find a plan that meets all your needs. We will provide you with one agent to work with you and compare all available plans in your area for free. To get instant quotes, simply enter your zip code in the bar above, or if you wish to speak directly with one of our agents, call 888-998-2027. There is no hassle or obligation.

Group Insurance For Furloughed & Laid Off Employees

The coronavirus pandemic has taken a toll on many small businesses, and many are now struggling to stay afloat. In order to keep going, many small business owners had no choice but to furlough or lay off employees in order to save money. If you are one of them, you might be wondering what your former employees’ health insurance options are after you let them go. Is there still a way you can offer them group insurance? You can choose whether to pay monthly health insurance premiums on behalf of your employees, but if it is not possible due to financial constraints, your employees do have other options.

Furloughed Vs. Laid Off

Health coverage for an employee is determined by the employer’s (your) health plan. The plan indicates how many hours an active employee has to work to be eligible for health insurance. There are also rules surrounding what happens to their health insurance when they are no longer an active employee. When an employee is :

Laid off, their employment is terminated, even if you are considering the lay off temporary. After an employee is laid off, their health insurance plan ends on the last day of the month they were laid off.
Furloughed, their hours are reduced, or they might not be working at all. The difference is that they can expect to return to work again when the furlough is over, so they can continue to get health insurance coverage during the furlough period. If this is the case, the employee will either be responsible for their share of the plan’s premiums, or you, the employer, can temporarily waive employee contributions and pay all of their premium.

ERISA & Federal Income Tax Rules

In general, nothing actually prevents you from paying monthly premiums on behalf of furloughed or laid-off employees. You have the option to choose to pay monthly premiums as long as you are able to. The premium will continue to be excludable from the gross income of the employees. Be aware, though, that if the plan rules do not permit an employee to be covered, then you are in danger of:

Potential loss of tax-exempt status of the plan, which means both you and your employees might owe back taxes, since pre-tax qualification would be lost.
Your insurance company denying claims for any employees that they determine are not eligible to participate in the plan.
A possible fiduciary breach under the Employee Retirement Income Security Act (ERISA) if plan assets were used to pay for benefits of non-eligible employees.
Laid-off and furloughed employees qualify for COBRA insurance.

COBRA Insurance

Another option to continue coverage for your employees is the COBRA program. Both laid-off and furloughed employees qualify for a Consolidated Omnibus Budget Reconciliation Act (COBRA) plan if their group plan is terminated and you can no longer pay their premiums. COBRA can be expensive for your former employees, because if you do not contribute to their premiums, they will have to pay the full amount.

ACA Marketplace

Last but not least, losing a job is considered a qualifying life event, so a Special Enrollment Period will open up for your former or furloughed employees after they lose their job and their coverage. This means that they will have 60 days to get a health insurance plan on the ACA Marketplace. This could be a cheaper option for your employees than COBRA.

EZ Can Help

The pandemic has actually caused some changes in the way that group health insurance works. For example, some states have issued orders requiring or encouraging insurance companies to allow employers to make changes to their eligibility requirements so they can continue to offer group insurance to furloughed or laid off employees. Some states are even allowing a grace period for premium payments. To find out if your state is one of them, speak to an EZ agent, who can help find out the information for you. If you are interested in continuing to offer a group insurance plan, we can help you find a reasonable way to provide insurance to the employees that you had to let go. The times we are living in are not normal by any means, and we know it is not an easy decision to let go of your valued employees. EZ can help by offering our services for free, which includes checking all possible options, answering any questions, and comparing quotes.

To get started, simply enter your zip code in the bar above, or to speak directly with an agent, call 888-998-2027.

W-2 Requirements for a QSEHRA

If you decide to offer a qualified small business health reimbursement arrangement (QSEHRA) to your employees, you might have some questions about how to report the benefits on your employees’ W-2s. The IRS requires employers to report these benefits, including how much each employee is entitled to receive in reimbursements in a calendar year. There are different variables to consider when it comes to filling out your W-2s, such as what you need to do if an employee did not participate in the QSEHRA or how to report carryover amounts, so let’s go over the most important things that you need to be aware of.

Reporting QSEHRA Benefits On the W-2

paper with tax incentive in the middle and a computer mouse and pen over the papers. — *You can report your QSEHRA contributions on the W-2 form in Box 12.*

If you have an employee who is participating in your offered QSEHRA, you must report the total amount of the employee’s permitted benefit on Form W-2 in Box 12, using Code “FF.” The IRS description for this code is: “Permitted benefits under a qualified small employer health reimbursement arrangement.” This benefit is not counted as taxable income for the employee.

It is important to note that over-the-counter medications used to require a prescription for reimbursement. However, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed in March 2020, has made over-the-counter medications eligible for reimbursement without a letter from a doctor or prescription. The medications should be reported on the W-2 Form as income in box 1 as well as in box 3, Social Security wages, and box 5.

Calculating The Benefits

When reporting on your W-2s, the permitted benefit amount should include only newly available QSEHRA funds. Any carryover amounts from previous years should not be included. However, if you use a non calendar-year QSEHRA, you will need to report a prorated amount.

Take the following example of a QSEHRA with a plan year that runs from August 1 to July 31:

For the plan year beginning August 1, 2020, a QSEHRA benefit of $3,000 was available to every employee for August 1, 2020 through July 31, 2021. The amount reported on the employee’s 2020 Form W-2, box 12, code FF is $1,500 (for August-December 2020).
In the new plan year (2021), the QSEHRA provides $3,500 to every employee for August 1, 2021 through July 31, 2022. The amount reported on the employee’s 2021 Form W-2, box 12, code FF is $3,250 ($1,500 for January-July 2021, and $1,750 for August-December 2021).

What About Carryovers?

When a QSEHRA has a carryover provision, only the newly available amounts are reported. If the QSEHRA allows for the use of carryover amounts from prior years, those amounts are not included in the amount reported for the current year. For example, if your employee has a remaining allowance of $1,000 in their QSEHRA allowance for 2020 and they receive $3,000 for the following year, only the $3,000 in new funds will be reported on their 2021 Form W-2 in box 12, Code FF.

What If An Employee Didn’t Participate?

Even if an employee did not participate in your QSEHRA, the benefits must still be reported on the employee’s W-2. You will report the amount of benefit that they were entitled to receive.

What About Employees With No MEC?

Employees who do not have the required minimum essential coverage (MEC) can still receive reimbursement through the QSEHRA, but will have to pay income tax on it. Specifically, any taxable reimbursements should be included as other compensation in box 1: Wages, tips, and other compensation.

If you issue a QSEHRA reimbursement and then later learn that the employee did not have MEC for the period in which the reimbursement occurred, the employee must repay the reimbursement as soon as possible.

However, if W-2 reporting is required before the employee has repaid the amount, that amount is taxable to the employee:

The amount must be included in the employee’s gross income on Form W-2, box 1.
The amount is not subject to FICA tax and should not be included in box 3, Social Security wages, or box 5, Medicare wages.

Have Questions?

If you choose to provide a QSEHRA to your employees, great! They are an excellent way to help your employees get the healthcare they need. But know that you will have to report these reimbursements on your W-2s, and it is important that you do it correctly in order to abide by the QSEHRA’s guidelines. If you need help exploring different types of small business HRAs, or have questions about offering healthcare in general, EZ can help. We will compare quotes, answer any questions and even sign you up for a plan at no cost to you. To get started, simply enter your zip code in the bar above, or to speak directly with an agent, call 888-998-2027.

Pre-Tax vs After-Tax Deductions

If you are thinking of offering group insurance or a HRA to your employees, or if you are already offering them one or both, you might be wondering how to withhold employee insurance premiums and your contributions from their paycheck. Do the deductions come out of their paycheck pre-tax or after-tax? In some cases, you can deduct their premium and your contributions from their paychecks pre-tax; other premiums may need to be deducted after-tax. It is important to know what kinds of contributions can be deducted pre-tax, as well as the advantage and disadvantages of doing so.

Pre-Tax Deductions

silhouette of a group of people standing in front of a large red heart. — *Group health insurance deductions can be taken pre-tax.*

Taking a pre-tax deduction means that you, the employer, withdraw money directly from your employees’ paychecks to cover the cost of benefits before income or payroll taxes are withheld. Internal Revenue Code (IRC) Section 125 allows for payroll deductions to be taken pre-tax for certain benefits, including:

Major medical coverage
Dental and vision insurance
Some retirement plans, such as 401(k) plans
Accident insurance
Cancer insurance
Healthcare Spending Accounts (HSAs)
Flexible Spending Accounts (FSAs)

In order to know which pre-tax benefits are exempt from state and local taxes, you will have to check your state and local laws.

What is the advantage of deducting premiums and contributions from your employees’ paychecks pre-tax? For employees, when premiums and contributions are deducted pre-tax, the amount of income that they have to pay taxes on is reduced, in some cases by up to 40%.

Doing this not only benefits your employees, it also benefits you; pre-tax deductions lower your tax liability, including the Federal Unemployment Tax (FUCA), State Unemployment Insurance (SUI) and FICA. For every dollar contributed to a retirement account, FSA or insurance plan, an employee’s taxable income is decreased accordingly. Your employees’ paychecks will effectively be lowered, meaning you will pay less in payroll taxes.

The drawback is that your employee might owe taxes on the money you withheld in the future. This is because they did not pay any federal, state, and local taxes on the contributions at the time they were withheld. These taxes were simply deferred. For example, when your employee retires and begins drawing on their 401(k), they will owe taxes on the money they use from their pre-taxed 401(k) plan.

After-Tax Deductions

caucasian female hand holding up hundred dollar bills. — *Contributions to retirement plans and other benefits are deducted after income and payroll taxes are deducted.*

After-tax premiums and contributions are deducted from your employees’ paychecks after income and payroll taxes are deducted. Unlike pre-tax deductions, these will not affect your employee’s taxable income. However, you and your employee will owe more payroll taxes with after-tax deductions. If premiums are deducted after-tax, your employees will not pay taxes when using the benefits in the future, such as when they withdraw money from a post-tax retirement or health arrangement plan. Common after-tax premiums include:

Some retirement plans (such as a Roth 401(k) plan)
Disability insurance
Life insurance
Major medical coverage purchased by an employee on their own

Need Help?

If you need help finding group insurance, a HSA, FSA, or HRA, then EZ.Insure can help. We want to make sure that you save as much money as possible, which is why we compare all plans in your area, for free. We will assess your business’ and employees’ needs and find the best plan that will help cut costs, not coverage. If you need help figuring out which plans qualify for pre-tax and post-tax deductions, we can help with that too. We will answer your questions and guide you through the process. To start comparing plans for free, simply enter your zip code on the bar above, or to speak directly with an agent, call 888-998-2027.

How Nonprofits Can Get Health Care

Offering employees health benefits is important for businesses in all fields to do, but nonprofit organizations often struggle to provide healthcare. Research conducted in 2019 found that only 18% of nonprofit organizations offer group health insurance. Over 80% of these organizations said that they couldn’t afford group health insurance, while others said that they have employees with a wide variety of needs, and they had difficulty providing for all of them. If you run a nonprofit and want to offer health insurance but are unsure how you can manage it, you should know that traditional group health plans are not the only route you can go to provide your employees with health benefits.

Do You Have to Offer Health Benefits?

group of people gathered around a table looking at a piece of paper — *Offering group health insurance can help keep them happy, healthy, and productive.*

In general, the choice to offer your employees health insurance is up to you. You should be aware, though, if you have 50 or more full-time employees, you do not have to offer health insurance, but you will be penalized for not offering some level of coverage. If you have fewer than 50 employees, then you are not required by the ACA to provide insurance, but there is an incentive for you to do so, which we will discuss later.

The main issue is that you really should offer healthcare to your employees, if at all possible. Offering health benefits is important because it helps keep your employees healthy and happy. Providing healthcare is beneficial for you, as well: studies show that offering health benefits is important for hiring and retaining top talent.

Nonprofit Health Benefits Options

Many small nonprofits simply do not have the resources to offer traditional group health insurance to their employees, but it does not mean they do not want to. It is a major challenge for most, but fortunately there are other ways to provide benefits:

SHOP Marketplace Group Plans

If you’re a small nonprofit with fewer than 50 employees, you can choose to offer a group health plan through the Small Business Health Options Program (SHOP). These affordable plans have four tiers of coverage, like individual ACA plans, and you have the ability to choose how much or how little you want to contribute to your employee’s premiums.

One of the best things about SHOP for smaller nonprofits? The tax advantages. You may be eligible for the Small Business Health Care Tax Credit if you have fewer than 25 full time employees, pay average annual wages to your employees of less than $50,000 per full time employee, and cover at least 50% of your full-time employees’ health insurance premium costs. You’ll be eligible for the minimum tax credit if you meet the above criteria; you’ll be eligible for the full tax credit if you have fewer than 10 employees who are paid less than $25,000 per year. The credit for tax-exempt nonprofits could be worth up to 35% of the cost of your contributions to your employees’ health insurance premiums.

HRA

A health reimbursement arrangement (HRA) is a way for employers to reimburse employees for medical expenses such as health insurance premiums and out-of-pocket expenses. The best part is that HRAs are tax-free! You can choose a certain tax-free monthly allowance to provide to your employees which rolls over each month. This will allow you to budget each month for employee health benefits, while giving your employees the option to choose the coverage that best suits their specific needs. There are 3 different kinds of HRAs:

Qualified Small Employer HRA (QSEHRA)– for employers with fewer than 50 full-time employees. These HRAs have a limit on the monthly amount you can offer. In addition, you cannot offer a group health plan alongside a QSEHRA.
Individual Coverage HRA (ICHRA)– for employers of all sizes, these HRAs can function as a stand-alone benefit or as a separate option in an organization’s health benefits program, alongside group health insurance.
Group Coverage HRA (GCHRA)– employer-funded medical reimbursement plan linked with a group health insurance plan, usually a high-deductible plan.

How EZ Can Help

Depending on the size of your nonprofit, you might have different options for offering health benefits. EZ.Insure works with businesses and organizations of all sizes and types, and understands that each business has different needs. We work with the top-rated insurance companies around the country and can compare plans in your area and help guide you to the best option for your nonprofit organization. Because we care about helping others and not making a profit off them, we offer our services for free. To get free instant quotes, simply enter your zip code in the bar above, or to speak directly with one of our licensed agents, call 888-998-2027.

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