Editor’s Note: This is the second installment of a two-part series. Click here to read the first installment in the series.
An ICHRA is a group health plan; as such, it is subject to many of the same general legal requirements as a traditional group health plan.
The ICHRA must comply with all of the general Employee Retirement Income Security Act (ERISA) requirements applicable to traditional group health plans, including reporting requirements (e.g., Form 5500), disclosure requirements (e.g., distributing Summary Plan Descriptions and Summaries of Material Modification), and so on.
An employer adopting an ICHRA, as the ERISA plan administrator, is responsible for ensuring the ERISA requirements are satisfied. Furthermore, ICHRAs are subject to other laws that apply to group health plans, such as COBRA and HIPAA.In most cases, ERISA and the other laws apply only to the ICHRA itself; the individual health insurance policies purchased through the ICHRA are not considered a group health plan for these rules. Still, an ICHRA, like all HRAs, has several required processes and guidelines.
This section will examine these five guidelines at a high level.
When an employer offers an ICHRA, it must be offered on the same terms to all individuals within a class of employees.
There are a few rules to ensure the offerings do not discriminate, including:
Also, through a new hire rule, employers can offer new employees an ICHRA while grandfathering existing employees in a traditional group health plan.
Employers define the monthly amount they want to contribute tax-free to the ICHRA; it can be as little or as much as they want. This represents the maximum amount for which employees can be reimbursed through the benefit.
With an ICHRA, there are no minimum or maximum contribution limits. In addition, employers can choose what they want the ICHRA to reimburse:
An employer may also offer different contribution allowances to employees based on the 11 classes. However, the employer must offer the same amounts to all within an employee class. It is important to note that contribution allowances offered may be increased based on age or family status, as long as contributions based on age do not exceed amounts three times greater for the oldest employees versus the youngest employees in the class.
An employee who falls within one of the designated classes defined by the employer can participate in the ICHRA. Using their own money, employees purchase a health insurance policy that best suits their needs. All employees participating in the ICHRA (and any covered dependents) must have individual health insurance coverage, which includes Medicare Parts A and B, or Medicare Part C.
Employees must provide proof of such coverage (e.g., by submitting an attestation) annually. If the employee loses or cancels their individual health insurance, coverage under the ICHRA ends.
After incurring an expense, employees submit proof of the expense to their employer for approval.
To be approved, the documentation submitted must include the following items: a description of the product or service; the cost of the expense; and the date the expense incurred. Invoices and receipts typically satisfy the requirements, as well as other documents that may be requested.
Before an employee can receive a reimbursement from the ICHRA, they must show proof that the person who incurred the eligible expense (i.e., the employee and/or a covered dependent) continues to have the required individual health insurance coverage.
Generally, all items listed in the Internal Revenue Service Publication 502 are eligible for reimbursement through an ICHRA. Employers have the option to limit this list and some employers may even opt to only cover individual health insurance premiums. With an ICHRA, all reimbursements are tax-free, including premiums.
The employer must approve the employee’s request and reimburse them up to the monthly contribution allowance. The expense is eligible for reimbursement, if the documentation provided by the employee meets the requirements and they have the appropriate individual health insurance coverage. Should the expense not qualify, the employer must follow the procedure for denied claims according to its ICHRA plan documents. Typically, employers include the tax-free reimbursements in the employee’s paycheck.
The process for setting up and offering an ICHRA requires six steps.
The first step is simple. Many employers think about benefits on a calendar year basis and align with open enrollment. An ICHRA can be started on any date and will trigger a special enrollment period, so employees can find coverage on the individual market outside of the open enrollment dates with ease. If an employer chooses to cancel an existing group health insurance plan, the ICHRA start date should begin one day after the cancellation takes effect.
Flexibility in designing the program to best fit the needs of employees is one of the valuable features of an ICHRA. Employers can split employees based on 11 categories and tailor the specific benefits to be provided to each custom class.
Employers can decide to offer an ICHRA to the following groups:
The next step for the employer is to determine the annual budget and how much it will provide employees monthly for insurance premiums and medical expense reimbursement.
Keeping in mind the following:
The Internal Revenue Code and ERISA (if applicable) require employers to establish a formal written plan document. In addition, ERISA requires presentation and distribution of a Summary Plan Description (SPD).
These legal documents cover a significant amount of information and must include the terms and conditions of the ICHRA including monthly reimbursement amounts, class structures, claims processes, reimbursement eligibility, and federally required information on HIPAA (if applicable), and other procedures involving privacy. There are potentially significant adverse consequences if an employer fails to adopt a written plan document or, if subject to ERISA, to present and distribute an SPD.
Considering how new ICHRAs are in the market, employers will want to provide guidance information to their employees. For many employees, the ICHRA will be their first experience with a reimbursement-based health benefit.
Practical information to communicate includes: the start date, how to obtain coverage (including a special enrollment period, if applicable), amount of their allowance, how premium tax credits interact with the ICHRA, what can be reimbursed, and how to request reimbursements. However, the employer must not guide or influence employees regarding what individual insurance coverage to purchase.
In most cases, employers are also required to provide a 90-day notice before the ICHRA’s start date.
All employees covered by the ICHRA must have individual health insurance, which includes Medicare Parts A and B, or Medicare Part C. Shopping for health insurance will be a new experience for many employees, and many may feel overwhelmed by the task at hand.
Employers should provide guidance, information, and tools to aid employees’ decision-making process. Employers also can direct employees on where to shop for benefits and with whom to consult for private advice. Again, it is important to note that employers should not directly or indirectly advise or influence employees when it comes to selecting an insurance company or policy.
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