What is an ICHRA
Individual Coverage Health Reimbursement Arrangement (ICHRA) is an IRS-approved, tax-free health plan for organizations of all sizes. With ICHRA plans, employers can make tax-free reimbursements to their W-2 staff for individual health insurance premiums and qualified out-of-pocket medical expenses.
ICHRA can help satisfy the specific requirements of the ACA employer mandate (specific affordability and value standards) and, hence, avoid steep penalties and fines.
Key ICHRA employer requirements
ICHRA Rule No. 1- Participants must enroll in Qualifying individual health Plan
Participants are only eligible for reimbursement if Employees maintain Minimum Essential Coverage (MEC) through a qualified health plan or are non-primary policyholders of a spouse or parent member’s policy.
Qualifying Individual health plans that are allowed under ICHRA include;
- On-exchange plans -Qualified Policies purchased through Health Insurance Marketplaces.
- Off-exchange plans- Qualified Policies purchased from a private exchange (an insurance company or a broker) that meets MEC with no annual or lifetime limits.
- Medicare Parts A and Parts B together.
- Medicare Parts C (Medicare Advantage plans).
- Student health insurance plans, apart from self-insured student health coverage.
Employees covered under traditional group health plans (including non-primary holders in a family member’s cover) are not eligible for ICHRA (note that this doesn’t prohibit group dental and vision like QSEHRA).
Any participant under Short-term health plans, healthcare sharing Plans, association health plans, and Tricare Medical Coverage are not allowed.
ICHRA Rule No.2 – Employers to observe the 90-day Notice Rule
According to federal regulations, HRA administrators are required to give employees a 90-day Notice before each plan year.
However, certain circumstances may call for a waiver of the 90-day Notice especially for new members who become eligible after the beginning of the plan year or newly hired members. Newly established employers also tend to be also tend to be lenient on the recommended notice.
The 90-day Notice must include how Individual coverage impacts the premium tax credits, employee eligibility, and employer contribution amounts.
ICHRA Rule No. 3 –Plan administrators to have a Process of substantiating and processing claims
Regulations push for Employers to take reasonable steps in ensuring that eligible employees and their participating dependents are enrolled in an individual health policy.
Administrators must put processes to ensure eligible members are conforming to the attestation and substantiation requirements at the beginning of each plan year and every time a reimbursement is being processed.
It’s also a requirement that new hires meet the set requirements as soon as they become eligible for ICHRA. Enrollment to a Qualified individual health plan should be done within a 60-day window once the member becomes eligible for ICHRA, this will trigger a special enrollment period (makes it easier to enroll for individual insurance outside of open enrollment.)
ICHRA Rule No. 4 – Different classes of employees may have access to different benefit levels
An employer can structure benefits to fit different employee classes. However, no employee can be a participant in both the ICHRA and the group health plan. Most organizations offer ICHRA to categories of employees not eligible to join the group plan.
The following are ways employees can be classified:
- Full-time staff
- Part-time staff
- Hourly staff
- Salaried staff
- Seasonal staff
- Staff on the Waiting period
- Temporary staff under a temporary agency
- Staff under Collective bargaining agreement
- Staff based in different locations, states, or rating areas
- Foreign staff who are working abroad
- Different Combination of the options above
ICHRA Rule No. 5- Legal Plan Documents (subject to ERISA).
ICHRA as a group employee health benefit is subject to the provisions of the Employee Retirement Income Security Act (ERISA).
Plan administrators must define the ICHRA plan within a formal written instrument(Under Section 402 of ERISA, this includes a formal plan document including the summary plan document (SPD)), and make it accessible to all members and their dependants. New enrollees in the ICHRA must be provided with the SPD within 90 days, while all eligible employees need to have it within 120 days after the ICHRA’s formation.
Employers are subject to Internal Revenue Service (IRS) fines if ICHRA participants are denied access to a plan document.
ICHRA plan documents should include:
- Named fiduciaries and plan administrators and their responsibilities
- Eligibility requirements
- Effective dates of participation
- Description of benefits and exclusions.
- Plan funding and reimbursement processes
- Claims procedures
- HIPAA privacy officers and rules regarding protected health information (PHI)
- Information on federal mandates
- The procedure for amending the plan
- The procedure for plan termination
Bottom line
- ICHRA is only accessible to W-2 employees. Partnership members, S Corporation owners, and sole proprietors who haven’t made a C corporation election are not eligible.
- Enrollment in qualifying individual health insurance and as a primary plan is a requirement to access tax-free reimbursements under ICHRA.
- Employees can still be eligible for ICHRA even if under a family members plan (this can be the spouse or parent’s). All they need is simply purchase a qualified individual health insurance coverage and make it the primary plan.
