Individual coverage HRAs (ICHRA) and Medicare

It’s common for employees of small businesses to opt for Medicare over their employer’s group health insurance plan because the benefits are often better. Even so, Medicare recipients also tend to have more medical expenses. For this reason, we frequently have customers ask us if an Individual Coverage HRA (ICHRA) might be a way they can offer these employees additional assistance with their medical expenses.

The short answer is that these employees cannot use an ICHRA if they are also offered a group health insurance plan. These guidelines were established in 54.9802-4(c)(2) of the final rule for Health Reimbursement Arrangements and Other Account-Based Group Health Plans. The specific section is as follows (emphasis added):

“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.”

What this means is that if an employer can place all of their Medicare-eligible employees into the same class, they can offer that class an ICHRA, as long as they do not offer any employees in this class a group health insurance plan.

The classes ICHRA allows include:

• Full-time
• Part-time
• Seasonal
• Temporary
• Salaried
• Hourly Employees covered under a collective bargaining agreement
• Employees in a waiting period
• Foreign employees who work abroad
• Employees in different locations
• A combination of two or more of these classes

See Individual coverage HRA (ICHRA) employee classes for detailed information about ICHRA classes. Note that these classes must be “bona fide”—you must use ICHRA for all employees that fall into that class, and you cannot offer a group health insurance plan to any employees in that class.

Conclusion

It’s possible for some employers to offer an ICHRA to employees on Medicare, but not if they also offer them group insurance. Even if the employee chooses not to participate in the group plan, the fact that they had the choice to pick the group plan or Medicare makes them ineligible for an ICHRA.

To learn more about offering an ICHRA to your employees, download our full-length guide