What Compliance Obligations Apply to Individual Coverage Health Reimbursement Arrangements (ICHRAs)?

Introduced in 2018 during President Trump’s first term, ICHRAs have gained in popularity over the years. The basic premise of an ICHRA is the employer can provide employees tax-favored money to buy their own individual market health plan or Medicare.

Final ICHRA rules from 2019 and additional guidance/tools can be found here:

• General ICHRA Rules
• ALE and Nondiscrimination Rules
• Guidance and Tools (Including Model Notices and Premium Look-Up Table)

There are a number of ICHRA provisions which employers have become accustomed to over the last five years and, at this point, should be relatively well known:

• How ICHRAs work in a pass-through entity like an S-Corp. or LLC
• How ICHRAs can only provide a benefit to those able to substantiate they have Medicare or a qualified individual health plan (not group coverage through another employer, not a health sharing ministry, not TRICARE or VA, not student coverage through a university, etc.)
• How ICHRAs can satisfy applicable large employer (ALE) requirements under §4980H
• That employers must provide a model notice to employees at least 90 days before the ICHRA begins each year to ensure the employee has adequate time to explore the individual health plan market and allow for timely effective date of coverage
• How non-discrimination testing is not required under §105(h) if the ICHRA reimburses just individual insurance premiums but is required when the ICHRA also reimburses out-of-pocket medical expenses
• How ACA reporting (1094-B/1095-B for non-ALEs, 1094-C/1095-C for ALEs) is required for employers sponsoring ICHRAs
• Rules regarding contributions, classes, substantiation, salary reduction arrangements and more

Following are other important considerations which are often misunderstood:

• ICHRAs are group health plans, even when they only reimburse premiums. So, they must comply with several group health plan laws such as ACA, COBRA, ERISA, and HIPAA:
  • ACA:
    • The ICHRA must be communicated on a Summary of Benefits and Coverage (SBC)
    • The employer cannot impose pre-existing condition limitations/exclusions
    • The employer cannot impose a waiting period longer than first of the month following 60 days (a 90-day waiting period is not feasible for an ICHRA)
    • Employer mandate ALE rules apply (such as waiving the waiting period for some rehires, or if the employer utilizes the lookback method, letting the ICHRA continue for the duration of any full-time stability period even if an employee’s hours decrease below 30 hours per week)
  • COBRA:
    • The premise is since the ICHRA is a group health plan, it is subject to COBRA and proper notices must be provided as applicable
    • There is extremely limited guidance on how to price the ICHRA COBRA premium, but employers should ideally calculate how much the plan is reasonably expected to cost (e.g., determine how much the employer actually pays out as a percentage of possible benefits, multiply every available ICHRA amount by that percentage, and add 2%)
    • Regulators expect some ICHRAs may allow employees to accumulate unused funds and carry them over to future years, making COBRA potentially more valuable when such funds can reimburse out-of-pocket medical expenses
  • ERISA:
    • An ERISA plan document and SPD is required
    • The SPD should state that the employee’s Medicare or individual health plan coverage is not part of the employer’s ERISA group health plan
    • ERISA claims and appeal rights apply
    • An employer subject to 5500 reporting must include the ICHRA (using code 4A and typically noting it pays from general assets)
    • Even governmental or church plan employers should adopt a document to explain the plan’s terms and appeal rights
  • HIPAA:
    • HIPAA special enrollment rights still must be honored by law
    • HIPAA also prohibits an actively at work clause delaying the start date of an ICHRA for a new hire who must take a leave of absence due to their health condition
    • Since the ICHRA is not a fully insured policy with an insurance carrier, the employer sponsoring the self-funded ICHRA must ensure it complies with the privacy & security requirements and provide a notice of privacy practices (NPP)

• ICHRAs are exempt from Medicare Part D creditability provisions when they only reimburse premiums but are subject to Part D creditability disclosures when they also reimburse out-of-pocket medical expenses.
• ICHRAs are a group health plan under the rules.  However, the rules advise that an “entity that offers prescription drug coverage…must disclose to all Part D eligible individuals enrolled in, or seeking to enroll in, the coverage whether the coverage is creditable prescription drug coverage”.  So, ICHRAs that only reimburse premiums are not subject to Part D creditability disclosure requirements because they do not offer prescription drug coverage.  However, ICHRAs that also reimburse out-of-pocket medical expenses would be subject to Part D creditability disclosure requirements.

• ICHRAs should be compliant with MHPAEA as long as they do not restrict the types of §213(d) medical expenses that can be reimbursed (if applicable).
• ICHRAs are not subject to RxDC reporting (HRAs are specifically excepted).
• ICHRAs are subject to PCORI reporting and fees (payable based on average enrolled employees and former employees without needing to count dependents).
• ICHRAs are not subject to the gag clause prohibition compliance attestation (GCPCA) because the ICHRA itself does not include any contract with a health care provider or network of providers.
• Hawaii does not allow employers to offer ICHRAs to employees protected under the Hawaii Prepaid Health Care Act (Hawaii employees working 20 or more hours per week).