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Individual Coverage Health Reimbursement Arrangements (ICHRAs) have gained significant traction since their introduction, quickly emerging as a viable alternative to traditional group health plans. As employers, both large and small, continue to explore and implement ICHRA solutions, it is crucial to understand the compliance requirements that accompany them. Adhering to these requirements is imperative for employers to ensure smooth operation and avoid legal pitfalls.

Understanding ICHRA

ICHRA allows employers to reimburse employees for individual health insurance policies, offering a flexible approach to health benefits. Customizable for both employers and employees, ICHRA provides employees the ability to choose the health insurance plan that best meets their needs and budgets. Employers, in turn, can better manage their expenses, eliminating the unpredictable yearly premium increases that come with traditional group plans.

Current ICHRA Landscape

According to the Kaiser Family Foundation, as of 2021, 55.1% of the non-elderly population in the U.S. had employer-sponsored health insurance . The market for self-insured employer-sponsored health insurance is substantial, valued at $1.1 trillion in 2022 and projected to reach $1.4 trillion by 2027.

The average family premiums for employer-sponsored health plans have risen significantly over the past decade, with small companies seeing a 24% increase and large firms a 22% increase. The average family premium in 2021 was $21,804 for small businesses and $22,389 for large businesses, further driving employers to seek alternatives like ICHRA .

Key Compliance Requirements for ICHRA

While ICHRAs offer simplicity and flexibility, they also come with a complex regulatory landscape. Employers must navigate various legal obligations to ensure compliance. Below are some critical compliance challenges and requirements to be aware of:

ICHRA Notice

Employers must distribute an annual notice to employees at least 90 days before the start of the ICHRA plan year. This notice needs to inform employees about how ICHRA works, how they can purchase a qualified health insurance plan, and how to navigate subsidies. This notice is important as it will help employees understand how ICHRA works so they can make an informed decision on whether they want to opt in or out of the benefit.

The 90-day advance notice requirement ensures that employees have sufficient time to evaluate their options and select appropriate health coverage. This notice must detail the ICHRA’s terms, the amount available for reimbursement, and how to enroll in individual coverage. Failure to provide this notice in a timely manner can result in non-compliance penalties and employee confusion.

COBRA

Employers with at least 20 employees must comply with COBRA requirements for ICHRAs. This can be complex, as COBRA applies to the ICHRA itself, not the individual health insurance policies. Employers must issue COBRA election notices and may charge the full premium plus an additional administrative fee. Ensuring compliance with COBRA is essential to avoid penalties and provide continuity of coverage for employees.

COBRA allows employees who lose their job or experience another qualifying event to continue their ICHRA coverage for a limited time. However, the application of COBRA to ICHRAs can be challenging because the continuation coverage applies to the ICHRA, not the individual health insurance plan. This means employers need to clearly communicate how COBRA works with ICHRA and manage the administration of these benefits effectively.

ACA Employer Mandate

ICHRA can satisfy the Affordable Care Act’s employer mandate requirements for employers with 50 or more full-time employees. ICHRA vendors often provide tools to ensure compliance with these mandates, which is crucial for avoiding potential fines and maintaining the required coverage standards.

To meet ACA requirements, the ICHRA must be affordable and provide minimum value. Employers must ensure that the reimbursement amount provided under the ICHRA allows employees to purchase coverage that meets these criteria. Accurate affordability calculations and adequate reimbursement amounts are essential for compliance.

Summary of Benefits and Coverage (SBC)

SBC requirements apply to ICHRAs, similar to traditional group health plans. ICHRA vendors must ensure that SBCs are completed accurately to provide clear information about the benefits and coverage provided, helping employees make informed choices about their healthcare.

The SBC is a standardized document that outlines the key features of a health plan, including coverage details, cost-sharing requirements, and limitations. Providing an accurate SBC helps employees understand their health plan options and ensures that the ICHRA complies with federal regulations.

IRS Form 1095-C

Employers must navigate the complexities of IRS Form 1095-C reporting for ICHRAs. Recent IRS instructions provide guidance on using specific codes to indicate compliance with the employer mandate. Accurate reporting is necessary to meet federal requirements and avoid penalties.

IRS Form 1095-C is used to report information about health coverage offered to employees and their dependents. Employers must complete this form for each employee who was full-time for one or more months during the year, detailing the coverage provided and any employer contributions. Accurate and timely submission of these forms is crucial for compliance with ACA reporting requirements.

PCORI Fee

The Patient-Centered Outcomes Research Institute (PCORI) fee generally applies to HRAs, including ICHRAs. Employers must submit these fees using IRS Form 720. This fee supports research on the effectiveness of medical treatments and is an important aspect of maintaining compliance.

PCORI fees are calculated based on the average number of lives covered under the ICHRA. Employers must determine the fee amount, file IRS Form 720, and remit the payment annually. Staying current with PCORI fee requirements ensures ongoing compliance with federal regulations.

Summary Plan Description (SPD)

ICHRA is subject to ERISA, requiring employers to provide an SPD, plan document, and annual Form 5500 (if applicable). These documents ensure transparency and provide employees with detailed information about their benefits and rights under the plan.

The SPD is a critical document that explains the ICHRA’s terms and conditions, including eligibility, benefits, claims procedures, and participant rights. Providing an up-to-date SPD helps employees understand their benefits and ensures compliance with ERISA requirements.

Section 111 Medicare Reporting

Section 111 reporting applies to HRAs, including ICHRAs, with an exemption for HRAs with annual benefits below $5,000. Accurate reporting is crucial to ensure compliance with Medicare coordination of benefits requirements and avoid potential penalties.

Section 111 reporting requires employers to report information about group health plan coverage to the Centers for Medicare & Medicaid Services (CMS). This reporting helps CMS coordinate benefits for Medicare-eligible individuals and ensures that Medicare is the secondary payer when applicable. Employers must comply with these reporting requirements to avoid penalties.

TPA License

Some states require third-party administrators (TPAs) to obtain licensure to process claims. This requirement can extend to ICHRA administrators, depending on the state’s regulations. Ensuring licensure is essential for legal operation and compliance with state laws.

TPA licensure requirements vary by state and may include obtaining a license, posting a bond, and meeting other regulatory standards. Employers must verify that their ICHRA administrator is properly licensed in all relevant states to ensure compliance and avoid legal issues.

Payment Facilitator & Money Transmitter Laws

ICHRA vendors facilitating payments to individual insurance carriers must comply with relevant laws, such as PCI DSS, MSB, or MTL requirements. Compliance with these laws is crucial to protect financial transactions and maintain trust with employees and carriers.

Payment facilitators and money transmitters are subject to various regulations designed to protect consumers and ensure the security of financial transactions. Employers must ensure that their ICHRA administrator complies with these regulations to safeguard employee contributions and maintain the integrity of the payment process.

How W3LL Can Help

Navigating the complex regulatory environment for ICHRAs can be challenging. At W3LL, we offer comprehensive support to ensure your ICHRA implementation is smooth and compliant. Our expertise in healthcare benefits administration, coupled with our advanced technology solutions, simplifies the process for employers, allowing you to focus on providing the best benefits to your employees.

Ready to explore how W3LL can support your ICHRA needs? Contact us today to learn more.

 


Sources:
  1. Kaiser Family Foundation: Employer-Sponsored Health Insurance Coverage
  2. MarketsandMarkets: Self-Insured Employer-Sponsored Health Insurance Market
  3. Kaiser Family Foundation: Employer Health Benefits Survey