What you can—and can't—change mid-year in your ICHRA plan design

We’ve had thousands of conversations with organizational leaders interested in adopting the individual coverage HRA (ICHRA) over the last year and a half. One of the most common questions we get asked is whether plan changes can be made during the plan year instead of waiting for renewal.

Read on to learn what types of ICHRA plan changes can and can’t be made during the plan year and why.

Setting allowances for an ICHRA

Feedback from business owners and HR staff we’ve helped is that predicting employee opt-in rates is challenging. ICHRA is less than a year old, so employees aren’t likely to have heard of it or know how it works. Their decision is also influenced by the amount of money they’re being offered in allowances and where they currently secure health insurance coverage, and those present their own challenges.

Since the budget for health benefits is usually static, uncertainty in participation leads to uncertainty in allowances. If participation is high, then allowances need to be lower to stay within budget. On the other hand, allowances can be increased if participation is lower because there aren’t as many hands in the pot.

But sometimes the budget does have wiggle room. If business picks up and there’s suddenly more money available to put towards health benefits, you may want to go ahead and give employees that money now instead of waiting until the next plan year.

The trouble with these scenarios is that you have to choose allowances before offering the ICHRA to your employees. And that brings us to the answer on allowances: you can’t change allowance amounts during your plan year.

See how much an ICHRA will cost using our calculator

Why can’t you change ICHRA allowance amounts mid-year?

Employees have to opt in or out of participating in the ICHRA, and the single most important part of their decision is the allowance amount they’re offered. While some might automatically opt out because they get their insurance through a spouse’s or parent’s plan, others will be weighing their ICHRA allowance against their premium tax credit.

Since their offered allowance impacts the affordability of their benefit and, therefore, their eligibility for premium tax credits, changing this amount mid-year in either direction could impact your employees’ opt in or out decision.

ICHRA rules don’t allow employees to make multiple opt in or out decisions during the plan year. That means anything that affects the ICHRA affordability calculation—including allowance amounts—can’t be changed during the plan year. If you want to change allowance amounts, you’ll need to wait until your ICHRA renews and begins a new plan year.

Learn more about how ICHRA affects premium tax credits

Employee classes with an ICHRA

One of the more compelling aspects of the ICHRA is the ability to group employees into classes. This lets employers choose which employees are eligible to participate and customize allowance amounts by 11 different job-based criteria like full-time, part-time, salaried, hourly, and location.

If you only want to offer your full-time, salaried employees an ICHRA, you can do that. If you want to offer employees in California more than your employees in Georgia, you can do that, too. Classes bring back a level of flexibility and customization that was lost when the QSEHRA was the only available HRA, which requires all employees to receive the benefit on equal terms.

Especially at smaller organizations, even one new hire can prompt the need to create a new class. Let’s say you’re hiring your first salaried employee and promised them a more lucrative health benefit to get them to accept the offer. You’d only be able to do it if you could create a new class for salaried employees that offers a larger allowance.

But what if things aren’t quite as rosy? Sometimes things don’t go as expected—exhibit A: 2020. If things take a turn for the worse, you may want to cut benefits for one or more classes of employees to save some money. If you were offering an ICHRA, you’d have to be able to remove a class from your plan design to accomplish this.

With an ICHRA, you can only add classes during your plan year. Removing classes isn’t allowed.

Why can’t you remove classes from an ICHRA?

Just like with changing allowances, removing classes affects the affordability of your employees’ health insurance. If an employee opted in and purchased a health insurance plan, they did so expecting you to subsidize part or all of the cost for them. If that allowance is taken away, the plan could suddenly become unaffordable, but they wouldn’t be eligible to receive any premium tax credits since they forfeited them when opting into the ICHRA.

On the other hand, you can add a new class for a new employee who doesn’t fit into one of your current classes. Nothing is being taken away from or changed for anyone currently participating. The only person affected is the new hire and they get to make their own opt in or out decision based on the allowance they’re offered. Any new hires that fit into the newly created class must be offered the same allowance as the first hire.

Reimbursable expenses with an ICHRA

You have two options when choosing which expenses will be eligible for reimbursement under their ICHRA: only health insurance premiums or premiums and qualified healthcare expenses.

Only reimbursing premiums is an easy way to make your benefits costs even more predictable. An ICHRA already lets you choose allowance amounts for each employee, so you already have a budget ceiling you know you’ll ever go over. However, if premiums are the only reimbursable expense, budgeting is a breeze. Your costs will be the same every month since premiums don’t change. This method is also closer to the group health insurance experience where you pay for part or all of an employee’s premium but they pay for out-of-pocket expenses on their own.

While it may make costs less predictable from month-to-month, allowing out-of-pocket expenses to be reimbursed makes the benefit all the more valuable to your employees. Who wouldn’t want help paying for copays and prescriptions—or even braces—if they had any leftover allowance?

So what if you want to change which expenses can be reimbursed in the middle of the year? While you’re technically able to change reimbursable expenses during the plan year, PeopleKeep’s software only allows you to go from only premiums to premiums and qualified healthcare expenses.

Learn more about offering an ICHRA with our full-length handbook

Why can’t you change from reimbursing premiums and expenses to only premiums with an ICHRA mid-year?

It’s a matter of the employee experience. There’s a big difference in perception between going from only reimbursing premiums to also reimbursing other expenses and going from reimbursing premiums and other expenses to only premiums.

In the first case, employees feel like they’re getting something extra without you actually offering any more money. Any employee who has a leftover allowance after paying their premium each month will now be able to use it for any recurring or unexpected expenses that may pop up throughout the year.

In the latter, employees feel like something is being taken away from them. They’re not being offered any less money, but it feels like the benefit is less useful. To help avoid this situation, it’s important to put in the work at the beginning when determining allowances to make sure you can afford the amounts you set.

Waiting periods with an ICHRA

Finally, we’ve come to the most exciting option: waiting periods...Oops, I spelled boring wrong!

While they may not be the most impactful part of your ICHRA’s plan design, it’s still important to think about what, if any, waiting period you want to implement before your employees can start getting reimbursed. It can be used as a small cost-control lever and also helps protect you from paying for an employee’s healthcare expenses if they leave before the waiting period is over. On the other hand, it can be used as a benefit in the hiring process if you let employees participate right away.

Whichever route you choose, you have to stick with it because you can’t change waiting periods during the plan year.

Why can’t you change ICHRA waiting periods during the plan year?

The ICHRA operates similarly to group health insurance in this regard. Once you set a waiting period for the plan, it can’t be changed. If you shorten the waiting period, then any employees hired before the change are worse off. If you decide to make the waiting period longer, then new hires after the change was put in place would be worse off than their peers who got hired before the change.

PeopleKeep’s software functions in a way that helps you avoid these situations, so we only allow changes to waiting periods to be made at renewal for the next plan year.

Conclusion

The ICHRA is a great health benefit option for a wide range of employers due to its flexibility and ability to customize it to your needs. Sometimes your needs change during the plan year, and that can have an impact on your ideal plan design. In those cases, you need to know what you can change and what you can’t when it comes to your ICHRA in the middle of the plan year.

Allowances can’t be changed because that would affect the affordability of your employees’ health insurance plans, which the final rule doesn’t allow. Waiting periods can’t be changed during the plan year, either. Classes can be added for new hires that don’t fit into an existing class, but classes can’t be removed during the plan year. In a similar vein, you can go from only reimbursing premiums to reimbursing out-of-pocket expenses as well, but you can’t do the reverse.

Curious to know if an ICHRA is the right health benefit for your organization? Take our HRA quiz to find out.