On June 13, 2019, three federal agencies issued lengthy and complex regulations that both expand and limit the circumstances under which an employer may reimburse its employees’ individual health insurance premiums. Let’s take a big picture look at these and their impact under the Affordable Care Act (ACA), Health Insurance Portability and Accountability Act (HIPAA), and the Consolidated Omnibus Budget Reconciliation Act (COBRA).
By way of background, in 2013 the federal government told employers they could not reimburse employees’ individual health insurance premiums without being subject to hefty tax penalties for violations of certain ACA requirements relating to annual dollar limits and preventive care coverage. Exceptions existed for an HRA covering just a single employee, or a retiree-only HRA.
The new regulations reverse the 2013 guidance. Under the new regulations, an employer that is willing and able to comply with numerous requirements may reimburse its employees’ individual health insurance premiums through what the federal government is calling the “Individual Coverage HRA” (ICHRA).
Under the new regulations, a compliant ICHRA can “integrate” with individual health insurance policies and thus avoid violating the ACA requirements. A compliant ICHRA can also “integrate” with Medicare, meaning that an employee could use a compliant ICHRA to pay Medicare Part B and/or D premiums. In addition to reimbursing individual health insurance premiums, an ICHRA can reimburse other Section 213(d) medical expenses, such as copayments and coinsurance. In addition, the new regulations will allow employers to amend their cafeteria plans to allow employees to pay any balance of individual health insurance premiums not covered by the ICHRA on a pre-tax basis.
The new guidance does not eliminate earlier rules around retiree-only HRAs, HRAs integrated with group health plans, and Qualified Small Employer HRAs.
The requirements imposed on ICHRAs are challenging to meet, and the extent of the challenge will depend on your organization’s unique workforce and existing benefit structure. Here are some highlights of these requirements:
The No-Choice Rule
Your organization cannot offer the choice between an ICHRA and a traditional group health plan to an employee.
A unique feature of the ICHRA is a complex set of rules that limit how your organization can offer an ICHRA to different classes of employees. The purpose of these rules is to limit the extent to which an employer can use an ICHRA to shift older or high-cost health plan members out of traditional health plans and into the individual insurance market. These rules are summarized below.
No forced ICHRA participation
An employer cannot force ICHRA participation and must give employees the option to opt out of coverage and waive future HRA reimbursements at least annually.
ICHRA participants must substantiate they are covered by individual health insurance. They must provide substantiation annually and with each new request for reimbursement of an incurred medical care expense. Employers can rely on the participants’ attestations and/or may require substantiation from a third party, such as an insurance card, showing the participants and any dependents are enrolled in individual health insurance. Employers can also use electronic means to comply with the substantiation requirements (view a model attestation for more detail).
Plan sponsors of ICHRAs must provide eligible employees with a detailed disclosure document. The disclosure must be provided at least 90 days prior to the start of the ICHRA plan year. However, for a new ICHRA, the initial disclosure may be delayed, typically to the first day of the plan year, if the ICHRA is established less than 120 days prior to the beginning of the first plan year. The federal government has published a model disclosure.
Employer shared responsibility mandate
An ICHRA is considered a group health plan and thus meets “minimum essential coverage” for purposes of the employer shared responsibility mandate. If an applicable large employer offers an ICHRA and/or other group health plan coverage to at least 95% of its ACA-full-time employees, and the ICHRA is “affordable,” the employer can avoid the “no offer” and “unaffordability” penalties under the employer mandate. Some ambiguity remains around “affordability,” however, for the purposes of the employer mandate. Although the regulations contain guidance determining ICHRA affordability for the purposes of premium subsidies, the government has not yet issued final guidance for purposes of the employer mandate. We expect guidance on this issue will be forthcoming.
Premium subsidies for individual health insurance
An employee who is offered an affordable ICHRA, or who enrolls in an ICHRA, regardless of whether or not it is affordable, will not qualify for premium subsidies for individual health insurance. However, an employee offered an unaffordable ICHRA who does not enroll may be able to qualify for premium subsidies.
The ICHRA is an ERISA plan and will require a plan document and summary plan description (SPD), an ERISA-compliant claims and appeals procedure, and possibly a 5500 depending on the number of covered employees.
Employers should also be aware that the individual health insurance policies funded under the HRA could become an ERISA plan if the employer “endorses” any of them, potentially exposing the employer to additional ERISA liability. “Endorsement” would include activities like limiting employees’ choice of individual health insurance carriers or plans, or otherwise steering employees towards certain carriers or plans. For example, if an employer establishes a “private exchange” that includes some, but not all, of the carriers selling individual policies in the applicable market, the employer likely would be found to “endorse” those carriers and thus be exposed to ERISA liability with respect to those policies.
Employers can, without causing ERISA applicability, help employees make insurance choices by providing completely neutral, unbiased, and uniformly available education about the options available in the marketplace.
Employers must also adhere to other requirements exist to avoid ERISA applicability, including ensuring voluntary participation, limiting reimbursement for non-group premiums to individual health insurance coverage that does not consist solely of excepted benefits, avoiding compensation to the employer in connection with an employee’s selection of individual health insurance coverage, and providing ICHRA participants with an annual notice stating that the individual coverage is not ERISA-covered.
As a self-funded plan, an ICHRA will in most cases be subject to HIPAA’s privacy and security rules. Employers new to self-funding will need to ensure adherence to HIPAA’s strict privacy and security rules with respect to the ICHRA.
For employers with 20 or more employees, an ICHRA will be subject to COBRA, which requires employers to provide certain notices and disclosures relating to the ICHRA and to provide continuation coverage under the ICHRA if a COBRA-triggering event occurs.
We will continue to monitor developments and issued guidance. In the meantime, clients with access to the HR Hotline can contact us with any questions.
Sarah provides employer-focused guidance on human resource matters. With an emphasis on employee benefits and the Affordable Care Act, she distils the complexity of employment laws into understandable action items that meet a client’s business goals.
Sarah provides employer-focused guidance on human resource matters. With an emphasis on employee benefits and the Affordable Care Act, she distils the complexity of employment laws into understandable action items that meet a client’s business goals. During previous private practice experience, Sarah handled numerous complex benefit matters, including the transition of benefit plans in large corporate acquisitions, de-risking solutions in pension plans, contested health plan claims, DOL and IRS audits and the implementation of ACA-compliant health plan solutions. Sarah graduated from University of Wisconsin Law School, with a Bachelor of Arts degree from Grinnell College.
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