Practitioners, Regulators Explore Wrinkles of ICHRA Design
By David A. Slaughter, JD, Senior Legal Content Specialist
At a recent American Bar Association (ABA) conference, benefits attorneys and agency officials explored some of the options and challenges that employers face in implementing an individual coverage healthcare reimbursement arrangement (ICHRA).
The ICHRA rule finalized in June gives employers a way to integrate a healthcare reimbursement arrangement (HRA) with individual coverage or Medicare, so employees can effectively be given funds to spend in the individual market in lieu of a traditional group health plan.
Previously, doing so had not been allowed because regulators had determined that an HRA would run afoul of the Affordable Care Act’s (ACA) ban on annual dollar limits unless it was integrated with group coverage.
What to Reimburse?
An ICHRA may be offered to employees who are not offered a group health plan and can substantiate that they have individual coverage. The ICHRA may be designed to cover all eligible medical expenses (as defined by Section 213(d) of the tax code) or just premiums. However, “if you say premiums only, employees might be incented to spend all of it” and seek out high-premium plans, noted Internal Revenue Service (IRS) attorney Kevin Knopf.
Premium reimbursements must be offered for both individual insurance and Medicare, according to Jason Lacey, an attorney with Foulston Siefkin LLP. The regulations were written this way to comport with the existing rules on Medicare secondary payer (MSP) and “nonduplication.”
Medicare nonduplication prohibits selling individual insurance to Medicare beneficiaries that would duplicate Medicare coverage. Therefore, if an ICHRA did not cover Medicare, Medicare beneficiaries would be unable to take full advantage of it, explained Jacob Ackerman of the Centers for Medicare and Medicaid Services.
This, in turn, would violate the MSP prohibition on discriminating against Medicare-eligible active employees. So the new rule says an ICHRA may integrate with Medicare Parts A and B or Medicare Advantage.
If a beneficiary selects Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation for an ICHRA, he or she still would have to be enrolled in some sort of individual coverage as well, said Knopf, a senior technician reviewer in the IRS Office of Chief Counsel. This is different from how COBRA operates for an HRA in the traditional group health plan context, Lacey noted.
An ICHRA must be offered on the same terms to all employees within a class, and the rule lists the criteria that can be used to classify employees for this purpose. These classes can be applied separately to each common-law employer, rather than over the whole controlled group, so “there’s a little more opportunity to slice and dice the classes than you might think,” Lacey said.
The rule includes a minimum size (10 to 20 employees) for some types of classes, including part- vs. full-time and hourly vs. salaried. However, this applies only to classes of employees actually offered an ICHRA, Knopf noted, and “if you’re only offering individual coverage to all your employees, you don’t have to worry about the minimum class size rule.”
The listed classifications can be combined to create a mini-class, such as part-time hourly workers in a specific rating area, according to Rachel Levy of Groom Law Group. A former employee must be treated as part of the class to which he or she last belonged, although employers may also keep the retiree-only HRAs that were permitted under prior rules, she added.
Effect of ERISA
Under the final rule, an ICHRA sponsor will not be subject to the Employee Retirement Income Security Act (ERISA) for the individual coverage, provided enrollment in that coverage is completely voluntary and there is no employer endorsement.
The agencies got many comments on the proposed rule about the degree and type of employer involvement that would be permissible, so the final rule included clarifications, said Elizabeth Schumacher of the U.S. Department of Labor. “Employers and plan sponsors can continue to help people shop for coverage,” provided this assistance is “unbiased, neutral, and uniformly available,” she said. That is, employers can’t steer employees to certain coverage or receive financial consideration based on the employee’s choice.
Ackerman, Knopf, Lacey, Levy, and Schumacher spoke at the 2019 Health and Welfare Benefit Plans National Institute, presented October 28 and 29 in Arlington, Virginia, by the ABA Joint Committee on Employee Benefits. The agency representatives noted that they were expressing only their own views.
David A. Slaughter, JD, is a Senior Legal Content Specialist. He focuses on providing, editing, and updating content related to employee benefits and privacy compliance, including the Thompson HR benefits products. Before coming to BLR, he was an employee benefits compliance editor with Thompson Information Services. Mr. Slaughter received his law degree from the University of Virginia and his B.A. from Dartmouth College. He is an associate member of the Virginia State Bar.