Final Rule Expands Availability of Health Reimbursement Arrangements (Benefit Minute)

Posted in: Benefit Minute

On June 20, 2019, the Departments of Labor, Treasury and Health and Human Services published a final regulation regarding Health Reimbursement Arrangements (HRA). The regulation is intended to fulfill the President’s Executive Order directing the agencies to expand the availability and use of HRAs by employers. While the final rule allows for two new types of HRAs, this Benefit Minute will focus on the Individual Coverage Health Reimbursement Arrangement (ICHRA).

Individual Coverage HRAs

The final rule make a number of changes to the existing guidelines for HRAs. The most significant change is that beginning on January 1, 2020 employers of all sizes will be permitted to offer ICHRAs. The ICHRA will be able to reimburse participants for premium costs for individual market health insurance. Prior guidance strictly prohibited this practice for large employers, as determined under the Affordable Care Act (ACA), based on the position that HRAs not integrated with a group health plan violated ACA market reform requirements.

ICHRA Requirements

An employer may offer an ICHRA to all employees or to one or more specific classes of employees.  However, the class(es) of employees offered the ICHRA cannot be offered traditional group health plan coverage.  Other ICHRA requirements include:

  • Any participant in the ICHRA must be enrolled in either individual market health insurance or Medicare.
  • If an employee ceases to have qualifying coverage during the plan year, the ICHRA benefits are forfeited on a prospective basis (forfeiture due to failure to maintain qualifying coverage is not a COBRA qualifying event).
  • All employees must be offered the ICHRA on same terms.
  • Employees must be given an opportunity at least annually to waive the ICHRA coverage (to possibly claim a premium tax credit for Marketplace coverage).
  • General notice requirements apply to the ICHRA.

ICHRA Permitted Benefits

Employers have discretion to set the terms of the ICHRA. They can elect to have the ICHRA available to only reimburse premiums or to also reimburse qualified medical expenses. Employers may decide the ICHRA benefit amount, and whether this amount will be allocated on an annual or per month basis. The regulation does not impose a minimum or maximum dollar amount for employers to make available through the ICHRA.

Substantiation of Insurance Coverage

Employers offering an ICHRA must adopt a reasonable procedure to substantiate that each employee and dependent is enrolled in, or will be enrolled in, qualifying coverage to receive the ICHRA. Employers can require either third party documentation or participant attestations to satisfy this requirement. In addition, each participant must recertify that they remain enrolled when requesting reimbursements under the ICHRA.

The final regulation creates a new individual market special enrollment period to allow employees to enroll in individual market coverage when they become eligible for an ICHRA.

Permitted Classes and Minimum Class Sizes

The final rule lists ten classes of employees that employers may use to determine which groups of employees will be offered an ICHRA. These are: full time; part time; salaried; non-salaried; work site in same rating area; seasonal, collective bargaining unit, employees that have not completed a waiting period, non-resident aliens with no US based income, and employees hired for temporary placement at an entity that is not their common law employer. Employers may combine any two or more of these classes to form the group of employees offered the ICHRA.

Minimum class size requirements may apply when some employee classes are offered a traditional group health plan and other classes are offered the ICHRA.  The class size requirement is intended to impede employers from shifting their high cost claimants to the individual market.  For employers with less than 100 employees, the minimum class size for the ICHRA is ten. For employers with 101 to 200 employees, it is ten percent of the total (rounded down). For employers with more than 200 employees, the minimum class size for the ICHRA is 20.

Same Terms Requirements

An employer is generally required to offer an ICHRA to all members of the class(es) on the same terms. However, some permitted variations are allowed. First, employers can provide increased ICHRA contributions to employees based on their age, so long as the oldest employee does not receive more than three times what the youngest employee receives. Second, the employer can vary the ICHRA contributions based on the number of covered dependents. Third, an employer can offer a class of employees two ICHRA options, one that is compatible with HSA contribution eligibility and one that is not. If an employer permits employees to pay the remainder of their individual market insurance premiums for coverage purchased outside of the Marketplace through a cafeteria plan, all members of the class(es) must be permitted to do so.

ICHRA Impact on Employer Mandate

An offer of coverage under the ICHRA will constitute an offer of minimum essential coverage under the ACA’s employer mandate. The Departments are continuing to assess how affordability safe harbors apply to the ICHRA. It appears that an employee’s required contribution for purposes of determining affordability may be based on the difference in cost between the premium for the lowest cost silver plan in the rating area and the monthly amount the ICHRA makes available to the participant.

ICHRA Notice Requirements

Employers must provide an annual notice to participants at least 90 days prior to the start of the ICHRA plan year, unless the ICHRA is established less than 120 days before the start of the first plan year. For that first year only, the notice must be provided no later than the effective date of the ICHRA. There are numerous elements which must be provided in the required notice, many of which mirror the terms that must also be disclosed in the Summary Plan Description for the ICHRA.

ERISA Safe Harbor

The underlying individual market insurance policies will not be subject to ERISA, provided certain conditions are satisfied. The employee’s purchase of the coverage must be voluntary, but the requirement to have this coverage to participate in the ICHRA does not impact the voluntary nature of the plan. The employer may not endorse any issuer or form of insurance coverage and must not receive any consideration in return for the employee’s selection of insurance. Reimbursement of premiums must be limited to qualifying coverage.  Finally, each participant must be notified annually that the individual market insurance policy is not subject to ERISA. However, the ICHRA itself would still be subject to ERISA unless a specific exemption applies.