Health reimbursement arrangements (HRAs) have traditionally been used for medical cost sharing purposes to help employees with copays, coinsurance and deductibles. On June 13, 2019, the Departments of Labor, the Treasury, and Health and Human Services issued a final rule creating a new type of HRA—the individual coverage HRA (ICHRA). ICHRAs are defined contribution, account-based arrangements exclusively funded by the employer to reimburse employees’ medical expenses. The accounts are notational or bookkeeping entry accounts and are not funded as part of a trust. The rules for ICHRAs were effective on or after January 1, 2020. As relatively new plans, the details are still somewhat unknown to many. Employers may have questions about the suitability for their workforce or if ICHRAs can help them address health care costs.
In the International Foundation’s recent webcast, “ICHRA Overview for Employers: The Health Plan 401(k) Has Arrived”, Newfront’s Brian Gilmore identified considerations for both employers and employees in using an ICHRA, addressed compliance requirements, and discussed broader concerns and issues including the connection between ICHRAs and defined contribution plans.
Three Takeaways From the Webcast
1.Employees covered by an ICHRA must be enrolled in an individual policy first. Individual policies are not covered by ERISA. However, ICHRAs are considered a group health plan subject to both ERISA and COBRA. IRS COBRA guidance for ICHRAs is still vague at this point.
2. ICHRAs could reimburse employees for specialty medical costs such as treatment for mental health care, infertility or other medical conditions that may not be sufficiently covered by medical benefits but are highly valued by employees.
3. The defined contribution health care approach may appeal to employers for various reasons.
- The employee chooses their own individual policy and has access to all insurance carriers and plan designs available in their area. In addition, employees with health conditions can enroll, as ACA plans prohibit medical underwriting and pre-existing condition exclusions in the individual market. The employer is not involved with plan selection or other administrative tasks related to the purchase and would therefore have no fiduciary responsibility for the underlying insurance policy. Offering an ICHRA to employees is treated as an ACA offer of coverage and can help employers avoid employer mandate penalties.
The employer has flexibility in the amount of funding for the ICHRA and can manage their own fixed costs for reimbursement purposes.
Resources
- International Foundation members can access a free recording of the webcast to take a deeper dive into ICHRAs.
- Access our three-part blog series on ICHRAs.
Purchase our Health Reimbursement Arrangements (HRAs) e-Learning course including ICHRAs.
Anne Newhouse, CEBS
Information/Research Specialist at the International Foundation of Employee Benefit Plans
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