ICHRAs can be used by Applicable Large Employers (ALEs) to satisfy the ACA employer mandate (“shared responsibility”) rules, provided they meet affordability and minimum essential coverage requirements.
Satisfying the Employer Mandate
An ALE meets 4980H (“employer mandate”) requirements if:
- The ICHRA is offered to at least 95% of full-time employees in an eligible class, and
- The ICHRA is affordable under ACA rules.
Determining ICHRA Affordability
An ICHRA is affordable under the ACA if:
(Lowest-cost silver plan premium – ICHRA monthly allowance) is ≤ the ACA affordability percentage of employee income.
Employers use one of the three IRS safe harbors:
- W-2 Safe Harbor
- Rate of Pay Safe Harbor
- Federal Poverty Level (FPL) Safe Harbor
ICHRA Third Party Administrators (TPAs) often have tools available for plan sponsors to help identify the lowest cost silver plans for affordability targets.
Impact on Employer ACA Penalties
- If an ALE offers an unaffordable ICHRA and a full-time employee receives a PTC → 4980H(b) penalty may apply.
- If an ALE fails to offer any coverage (group plan or ICHRA) to 95% of full-time employees → 4980H(a) penalties may apply.
What Counts as an “Offer of Coverage”
For ACA compliance, the ICHRA must:
- Permit enrollment in individual market coverage
- Meet affordability rules
- Be offered uniformly to all full-time employees in the class
- Include the required 90-day notice