Indiana’s ICHRA Incentive and What it Means for Your Business

Indiana’s House Bill 1004, Health Care Matters, offers a special tax break for businesses with fewer than fifty employees that provide health benefits with an ICHRA.

March 7, 2024

What is House Bill 1004, Health Care Matters?

Under House Bill 1004, eligible businesses can claim a tax credit against their state tax liability. The credit is up to four hundred dollars ($400) per covered employee for the tax year 2024 and $200 for 2025. 

However, to maximize this benefit, businesses must contribute to their employees' Health Reimbursement Arrangements (HRAs) at a level equivalent to or exceeding their previous year's healthcare or employer-provided insurance plan contributions. 

This tax credit directly benefits the business, not the individual employees.

House Bill 1004 introduces various strategies to manage costs while improving healthcare value. These include instituting changes in Indiana’s healthcare cost oversight and reporting, tax credits and incentives, payer affordability and penalties, provider billing and reimbursement, and insurance and claims data. Below, we will dive into each of these categories of the bill.

Healthcare Cost Oversight and Reporting

House Bill 1004 establishes mechanisms for overseeing healthcare costs effectively, including:

  • Creation of a health care cost oversight task force with defined duties.
  • Requirement for researching and compiling Medicaid reimbursement rates across states.
  • Mandate for submitting reports to ensure transparency and accountability.
  • Specifies additional information that hospitals must report to the Indiana Department of Health in the hospital's annual report.
  • Establishes a fine for hospitals that fail to timely file the report.

Tax Credits and Incentives

The bill offers tax credits and incentives to support healthcare innovation, such as:

  • Tax credits for eligible physicians with ownership stakes in practices.
  • Incentives for small businesses adopting Health Reimbursement Arrangements (HRAs) over traditional insurance plans.
  • Allows a credit against the state tax liability of an employer with fewer than 50 employees if the employer has adopted a health reimbursement arrangement and meets certain criteria.

Payer Affordability and Penalties

To ensure healthcare affordability, House Bill 1004 introduces measures like:

  • Establishment of a payer affordability penalty fund.
  • Prohibits an insurer, health maintenance organization, employer, or other responsible party from accepting a bill submitted on an institutional provider form.
  • Repeals language requiring a hospital to hold a public forum.

Provider Billing and Reimbursement

The bill simplifies billing processes and ensures fair reimbursement by:

  • Setting clear billing requirements for healthcare services.
  • Prohibiting acceptance of bills submitted on institutional provider forms.
  • Offering provisional credentialing for physicians joining independent primary care practices.

Insurance and Claims Data

Access to accurate claims data is facilitated through:

  • Contracts for calculating hospital prices to improve pricing transparency.
  • Timely provision of claims data to administrators.
  • Discussion of reimbursement rate issues by the all-payer claims database advisory board to inform policy decisions.
  • Mandates the Department of Insurance to contract a third party for calculating hospital system prices and submitting them for review.
  • Allows healthcare providers in value-based agreements to join programs reducing prior authorization, requiring plan transparency.
  • Requires prompt claims data provision by administrators, insurers, or organizations, with penalties for delays. Also, sets up discussions on reimbursement rates and permits provisional physician credentialing for independent practices.

The HRA Tax Credit for Small Businesses in Indiana

One of the most significant aspects of Indiana House Bill 1004 is the introduction of a tax credit for small businesses offering HRAs. This tax credit is poised to benefit employers and employees, offering incentives for adopting HRAs as a cost-effective healthcare solution. 

Understanding Individual Coverage HRAs (ICHRAs): ICHRAs are tax-advantaged benefits solutions that enable employers to reimburse employees for health insurance expenses rather than provide traditional group health insurance plans. This approach not only helps control costs but also serves as a robust recruitment and retention tool.

Tax Incentives for Employers: Indiana's new law provides tax credits to businesses with fewer than 50 employees that adopt HRAs. By implementing an HRA, companies can lower their overall tax liability, making it a financially attractive option for providing employee health benefits.

Benefits for Employees: The availability of HRAs could lead to increased choice and reduced health insurance costs for employees. HRAs empower employees to select insurance plans tailored to their individual needs, promoting greater flexibility and coverage options.

Eligibility and Reporting Requirements: Small businesses seeking to claim the HRA tax credit must meet specific eligibility criteria and adhere to reporting requirements outlined in the legislation. Eligible businesses can claim up to $400 per employee in the first year and $200 per employee in the second year, subject to certain limitations.

Implementation Timeline: The HRA tax credit provision took effect on January 1, 2024, allowing small businesses to explore and adopt HRAs as part of their healthcare benefits strategy.

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Eligibility and Reporting Requirements

While the prospect of claiming tax credits may sound enticing, small businesses must comply with the eligibility criteria and reporting requirements outlined in House Bill 1004. 

Eligibility Criteria for Small Businesses: To qualify for the HRA tax credit, small businesses must meet specific criteria, including having fewer than 50 employees and adopting an HRA that meets specified standards. By adhering to these criteria, companies can unlock the full potential of tax incentives offered under the bill.

Navigating Reporting Requirements: Reporting plays a pivotal role in claiming tax credits under House Bill 1004. Small businesses must furnish periodic reports to the relevant authorities detailing their adherence to HRA adoption and contribution standards. By staying proactive and compliant, companies can ensure a smooth journey toward maximizing tax benefits.

Case Study to Watch

Indiana's approach to incentivizing the adoption of Individual Coverage HRAs (ICHRAs) presents an intriguing opportunity, particularly for small businesses that have never offered benefits before. By providing tax credits to employers who transition their employees to ICHRAs or introduce health insurance benefits for the first time, the state aims to increase awareness of health insurance availability through the state marketplace. This initiative not only encourages employers to educate their workforce about accessing health insurance but also serves as a strategy to address the uninsured population, leveraging the employer network. If successful, Indiana's model could serve as a compelling case study for other states seeking to boost individual market enrollment by incentivizing employer participation.

From a cost-saving perspective, the potential benefits are twofold: not only does the individual market in Indiana offer significant savings compared to the small group market, but the added tax credit further enhances the attractiveness of transitioning to ICHRAs. As this initiative unfolds, its impact on ICHRA adoption and policymaker perspectives on increasing individual exchange enrollment will be closely monitored, potentially influencing similar plans across the country.

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Frequently Asked Questions

Who is eligible for the HRA tax credit?

Small businesses in Indiana with fewer than 50 employees are eligible for the HRA tax credit if they adopt an HRA that meets specific standards outlined in Indiana House Bill 1004. To qualify for the tax credit, the employer's contribution toward the HRA must meet specific criteria, ensuring that employees receive meaningful healthcare benefits while controlling overall healthcare costs for the business.

How much is the tax credit?

The tax credit available under Indiana House Bill 1004 allows eligible employers to claim up to $400 per employee for the first year and $200 per employee in the second year of offering an HRA. This tax credit is a financial incentive for small businesses to adopt HRAs as an alternative to traditional employer-sponsored health insurance plans, providing them greater flexibility and control over healthcare benefits while reducing their overall tax liability.

Can businesses with existing HRAs qualify for the tax credit?

Yes, businesses with existing HRAs may qualify for the HRA tax credit under Indiana House Bill 1004, provided their HRA offering meets or exceeds the benefits provided in the previous year. This provision ensures that businesses already offering HRAs can still benefit from the tax credit, incentivizing them to continue delivering robust healthcare benefits to their employees while maximizing tax savings opportunities.

Are there limits to the tax credit carryover?

While the HRA tax credit allows for carryover of unused credits, specific limitations are outlined in Indiana House Bill 1004. The tax credit carryover can only be used for ten years from the date of the initial credit. Additionally, the carryover amount must be reduced to the extent that the qualified taxpayer uses it to obtain credit for any subsequent tax year, ensuring that the tax credit remains consistent with the intended objectives of the legislation.

How does the HRA tax credit benefit employees?

The HRA tax credit provides several employee benefits, primarily by encouraging employers to offer HRAs as part of their healthcare benefits package. By adopting HRAs, employees gain increased flexibility and choice in selecting healthcare plans that best suit their individual needs and preferences. Additionally, HRAs empower employees to take control of their healthcare expenses, as they can use HRA funds to cover qualified medical expenses tax-free. 

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