As a business owner and employer, one of the biggest expenses on your plate is health insurance. No matter the size or sector of your organization, your employees are expecting high-quality and affordable health insurance for all of their needs. Yet because health insurance costs can be exorbitant, business owners may struggle to find a cost-effective health insurance plan that suits both the company’s needs and employees’ needs.
This is where an Individual Coverage HRA (“ICHRA”) can help. ICHRAs, which became available to employers starting in January 2020, are alternatives to traditional health group plan coverage to reimburse employees’ medical expenses. Even better, the reimbursement is tax-free and offers higher limits and more flexibility compared to similar plans (like QSEHRAs).
Should you choose to offer an ICHRA to your employees, however, you will need to comply with several different types of employer reporting requirements. While these requirements may not be at the top of your mind, they are important requirements that you absolutely need to follow.
Reporting Requirements with ICHRAs
In our analysis of ICHRA requirements, it is helpful to start with notice requirements. Like many other health care plans, you are required by law to notify your employees of newly available benefits or changes to your health care plan.
According to the federal government’s guidance, employers must give written notice at least 90 days before the start of the individual coverage HRA’s plan year. If you hire new employees during the individual coverage HRA plan year or 90 days before the plan year, you will also need to give notice no later than the first day that the individual’s ICHRA coverage can start.
Specifically, this employer notice requires several things. You must include key information about the ICHRA, which includes the dollar amount of the HRA offer, the starting date of HRA coverage, whether the offer extends to an employees’ dependents, and more. To find much more information about these notice requirements, you can click here to access the Department of Labor’s ICHRA Model Notice.
From there, let’s talk about some more requirements that are part of implementing ICHRAs. Two of the most important statues that you’ll need to comply with are ERISA and COBRA. These statutes are relevant because ICHRAs are considered group health plans. Therefore, you will want to make sure that your company complies with all ERISA and COBRA provisions when you are implementing your new ICHRA.
In terms of ERISA, one of the more notable provisions centers on plan documents. ERISA section 402 requires that employers create formal documents that outline an employee benefit plan. But along with this basic requirement, ERISA also requires that employers provide a summary plan description (“SPD”). The SPD needs to include things like a description of the provided benefits, a description of the procedures when filing a claim, a statement of rights and obligations for the participants and beneficiaries of the plan, and an explanation of circumstances that would result in disqualification or forfeiture of benefits. You can find all of the requirements in ERISA section 2520.102-3.
While the formal documents that outline the employee benefit plan may be more lawyerly or complex, the SPD is simpler. The SPD should be delivered within 120 days of the ICHRA’s creation. If you have already established an ICHRA and hire a new employee, you must deliver the SPD within 90 days.
Along with these requirements under ERISA, you will need to comply with COBRA when establishing your ICHRA.
Critically, not all businesses that offer an ICHRA need to comply with COBRA requirements. Generally speaking, those businesses in the private-sector that employed at least 20 people on more than 50% of the prior year’s business days must comply with COBRA. If your business has less than 20 full and part-time employees for more than 50% of the prior year’s business days, you will likely not be subject to COBRA. Since this analysis is extremely important, you’ll likely want to confirm with your company’s attorney.
Assuming that your company is subject to COBRA, it’s important to recognize that employees and their family members who are covered under the ICHRA will be eligible for COBRA coverage when a qualifying life event (like loss of a job) occurs. Like ERISA, businesses must give employees and their beneficiaries a notice of their COBRA rights, and this notice must be delivered within the first 90 days of when ICHRA coverage begins. It can also be an individual document or part of the SPD under ERISA. In the end, don’t forget about these COBRA requirements, as you may be subject to fines or other penalties for non-compliance.
Finally, you will need to provide a notice to your employees about ICHRA’s interaction with the premium tax credit. Any employee that obtains health care coverage through an ICHRA cannot leverage the premium tax credit. You need to provide notice about how the ICHRA works with the premium tax credit. Thankfully, the IRS has published an ICHRA Model Notice that you can use by clicking here. While you need to add certain data and information to personalize this Model Notice, it is a good start.
Ultimately, the above was not explicit legal advice. We recommend that you speak with your company’s attorney to determine your specific reporting and notice requirements when implementing your ICHRA. Along with this, setting up documents like your SPD can be complicated. There’s no need to worry if you take on third-party assistance to create these documents.
Ultimately, we encourage you to tread lightly with these requirements. ICHRAs can be a great health insurance alternative, but you want to make sure that you are following all of the reporting requirements that come with the ICHRA. By doing so, you can gain some much-needed peace of mind while providing a cost-effective and appealing health insurance option for your employees.