Pension & Benefits News Employers who offer ICHRAs can’t steer participants toward any specific health insurance plan, experts advise
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Wednesday, September 25, 2019

Employers who offer ICHRAs can’t steer participants toward any specific health insurance plan, experts advise

By Pension and Benefits Editorial Staff

About 800,000 employers are expected to offer individual coverage health reimbursement arrangements (ICHRA) under final rules issued in June 2019 by the Department of Labor (DOL), Internal Revenue Service (IRS), and Health and Human Services (HHS). That’s according to Matt Litton, EBSA Employee Benefits Law Specialist, and Kevin Knopf, IRS Senior Technician Reviewer, who spoke at a recent health reimbursement arrangement (HRA) compliance assistance webcast. The speakers discussed several components of the final rules, including the ICHRA requirements, excepted benefit HRAs and the ERISA safe harbor.

Background. The speakers first noted that although prior guidance allowed the use of HRAs to be integrated with other employer group health plans, Medicare Parts B and D, and TRICARE under certain conditions, the use of HRAs to reimburse individual market premiums was prohibited. After issuing proposed rules in October 2018 to allow ICHRAs, the final rules were published in June 2019 and are applicable for plan years beginning on or after January 1, 2020.

ICHRA requirements. Knopf then set forth the ICHRA requirements, which include the following:

  • Participants and dependents must be enrolled in individual health insurance coverage or Medicare Part A and B or Part C;
  • No traditional group health plan can be offered to the same class of employees;
  • The HRA must have reasonable procedures to verify and substantiate enrollment in coverage;
  • The HRA must allow participants to opt-out of the HRA once annually and on termination of employment;
  • The HRA must provide a notice containing certain specified information; and
  • The HRA must be offered on the same terms to all employees within a class, subject to certain exceptions.

Knopf clarified that employers cannot offer a choice between an ICHRA or cash because that is not an HRA. He also addressed whether employers can allow employees to pay any portion of the premium for their individual health insurance that is not covered by the ICHRA via a salary reduction arrangement under a cafeteria plan. This is permitted, he said, but only for coverage that is purchased outside an exchange. The Internal Revenue Code provides that an employer may not permit employees to make salary reduction contributions to a cafeteria plan to purchase coverage offered through an exchange.

Permitted classes. Knopf also explained there are 10 classes of employees that can be offered ICHRAs. These are the only classes that are permitted, but classes may be combined. The classes are:

  • full-time employees,
  • part-time employees,
  • seasonal employees,
  • employees covered by a collective bargaining agreement,
  • employees who have not satisfied a waiting period,
  • nonresident aliens with no U.S.-based income,
  • employees working in the same rating area,
  • salaried employees,
  • non-salaried employees (e.g. hourly), and
  • temporary employees of a staffing firm.

Special rule for newly hired employees. Knopf noted the final rules include a special rule to allow employers to maintain a traditional group health plan for current employees while beginning to offer an ICHRA to newly hired employees in the same classification of employees. For example, if 200 current employees have a traditional plan and then the employer hires three employees, the employer can create a new hire subclass and offer those three employees an ICHRA.

Excepted benefit HRAs. Next, Litton discussed the requirements of excepted benefit HRAs, which the final rule created. He explained that an excepted benefit HRA must not be an integral part of the plan. In addition, traditional group health plan coverage must be made available to the participant. Excepted benefit HRAs must be limited in amount with the amounts newly made available for a plan year not exceeding $1,800 per year, indexed for inflation. Finally, such HRAs must be made available on the same terms to all similarly situated individuals (as defined in the HIPAA nondiscrimination rules), regardless of health status.

In addition, excepted benefit HRAs cannot reimburse premiums for individual health insurance coverage, Medicare Part A, B, C, or D, or a group health plan (generally). However, they can reimburse premiums for COBRA or other continuation coverage, short-term, limited-duration coverage (unless prohibited by HHS for small employers in a state under a special rule), or excepted benefits, such as dental and vision.

ERISA safe harbor. Litton also explained there is a narrow ERISA safe harbor for ICHRAs. They are not part of a group health plan if:

  • the purchase of individual insurance is completely voluntary;
  • the plan sponsor does not select or endorse coverage;
  • reimbursement for nongroup health insurance premiums is limited solely to individual health insurance coverage;
  • the plan sponsor receives no consideration in connection with the employee’s selection or renewal of any individual health insurance coverage; and
  • each plan participant is notified annually that the individual health insurance coverage is not subject to Title I of ERISA.

Litton noted there have been many questions regarding a plan sponsor’s involvement with coverage. A sponsor can be helpful generally regarding coverage options, but the information presented must be unbiased and neutral. A plan sponsor cannot “steer a participant” toward any specific health insurance plan, he said.

Notice requirements. Finally, Litton mentioned the final regulations contain a cross reference to several ERISA notice requirements that apply to excepted benefit HRAs, such as providing a summary plan description and summary of material modifications to the plan.

SOURCE: "Health Reimbursement Arrangements Compliance Assistance Webcast," September 12, 2019.

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