What is Individual coverage HRA (ICHRA)? An HRA is a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. An individual coverage HRA is an HRA integrated with individual health insurance coverage or Medicare, subject to certain conditions.

ICHRAs, created under regulations the IRS issued in June 2019, allow employers to contribute tax-free a set dollar amount each year to each eligible full-time employee. ALEs using ICHRAs to provide ACA-compliant health coverage must fund these accounts to allow employees to purchase coverage that meets the ACA’s affordability guidelines. This means that for 2020, policy premiums must not have exceeded 9.78 percent of an employee’s income.  This applies to the years following 2020 with the applicable percentage for that year.

The final October 14, 2020 IRS draft for the 2020 Instructions for Forms 1094-C and 1095-C adds eight new HRA codes for line 14 (1L – 1S) for employers to indicate the method they used to determine affordability for their ICHRA plan. Also added is a new Line 17 for the employee’s primary residence’s ZIP code to determine the cost of an accessible exchange-based plan.

Click Here for the 2020 Instructions for Forms 1094-C and 1095-C

NEW LINE 14 HRA 1095-C CODES:

• 1L. Individual coverage health reimbursement arrangement (HRA) offered to the employee only with affordability determined by using employee’s primary residence location ZIP Code.
• 1M. Individual coverage HRA offered to the employee and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP Code.
• 1N. Individual coverage HRA offered to the employee, spouse and dependent(s) with affordability determined by using employee’s primary residence location ZIP Code.
• 1O. Individual coverage HRA offered to the employee only using the employee’s primary employment site ZIP Code affordability safe harbor.
• 1P. Individual coverage HRA offered to the employee and dependent(s) (not spouse) using the employee’s primary employment site ZIP Code affordability safe harbor.
• 1Q. Individual coverage HRA offered to the employee, spouse and dependent(s) using the employee’s primary employment site ZIP Code affordability safe harbor.
• 1R. Individual coverage HRA that is NOT affordable offered to the employee; employee and spouse or dependent(s); or employee, spouse, and dependents.
• 1S. Individual coverage HRA offered to an individual who was not a full-time employee’

What about line 15? Complete line 15 only if code 1B, 1C, 1D, 1E, 1J, 1K, 1L, 1M, 1N, 1O, 1P, or 1Q, is entered on line 14 either in the “All 12 Months” box or in any of the monthly boxes. Enter the amount of the Employee Required Contribution, which is, generally, the employee share of the monthly cost for the lowest-cost, self-only offered to the employee.

What about Line 16?  The appropriate ALE Safe harbor will be used for HRA codes 1L -1Q.

NEW LINE 17 EXPLAINED:  If the ALE Member used code 1L, 1M, 1N, 1O, 1P, or 1Q because it offered the employee an individual coverage HRA, enter the appropriate ZIP code used for identifying the lowest cost silver plan used to calculate the Employee Required Contribution in line 15. This will be the ZIP code of the employee’s residence (code 1L, 1M, or 1N) or the ZIP code of the employee’s primary site of employment if the ALE Member uses the work location safe harbor (code 1O, 1P, or 1Q).

Location safe harbor for individual coverage HRAs: For purposes of section 4980H(b), an employer may use the cost of self-only coverage for the lowest cost silver plan for the employee for self-only coverage offered through the Exchange where the employee’s primary site of employment is located for determining whether an offer of an individual coverage HRA to a full-time employee is affordable. The ZIP code for the employee’s primary site of employment is used to identify the applicable lowest silver plan to determine affordability.

Complete Part III ONLY if the ALE Member offers employer-sponsored, self-insured health coverage, including an individual coverage HRA, in which the employee or other individual enrolled. For this purpose, employer-sponsored, self-insured health coverage does not include coverage under a multiemployer plan. Do not complete Part III if the ALE Member offers coverage only under a fully insured group health plan. If an ALE Member offers both insured and self-insured coverage, complete Part III only for employees who enroll in the self-insured coverage.

Other Special Rules apply for individual coverage HRAs.

• For an employee offered an individual coverage HRA, the Employee Required Contribution is the excess of the monthly premium for the applicable lowest cost silver plan based on the employee’s applicable age over the monthly individual coverage HRA amount (generally, the annual individual coverage HRA amount divided by 12).
• An ALE Member with a self-insured major medical plan and a health reimbursement arrangement (HRA) that has an individual who enrolls in both types of minimum essential coverage is required to report the individual’s coverage under only one of the arrangements in Part III. An ALE Member with an insured major medical plan and an HRA that has an individual who enrolls in both types of minimum essential coverage is not required to report in Part III the HRA coverage of an individual if the individual is eligible for the HRA because the individual enrolled in the insured major medical plan. An ALE Member with an HRA must report coverage under the HRA in Part III for any individual who is not enrolled in a major medical plan of the ALE Member (for example, if the individual is enrolled in a group health plan of another employer (such as spousal coverage) or if the ALE Member provides an individual coverage HRA).

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Last Review:      6/12/2022 – Revision:

Applies To:    ACA Compliance Solution

Keywords:  HRA; ICHRA

Categories:  ACA Plan Setup; Year End – 1095-C and Filing

KB Number: KB14-090