The individual coverage health reimbursement arrangement (ICHRA) is a formal health benefit for organizations of all sizes to reimburse their employees for individual insurance premiums and qualifying medical expenses.
One of the first steps in setting up an ICHRA is creating formal plan documents. ERISA and IRS rules require all organizations offering an employee benefit plan to set up governing documents, including employers offering alternative health plans like the ICHRA.
In this post, we’ll go over why your organization needs ICHRA plan documents, what the documents must include, and how and where you can create those documents.
The ICHRA: what is it?
First, let’s briefly revisit the ICHRA and how it works.
The ICHRA was proposed through regulation from the Departments of the Treasury, Labor, and Health and Human Services in October 2018. With an ICHRA, employers offer employees tax-free money instead of a traditional group health insurance policy.
First, the employer sets a monthly allowance for each employee. Employees then spend that money on healthcare, including individual health insurance policies, and submit proof of their purchases to the business. The employer reviews this documentation and reimburses employees up to their allowance amount.
There are no caps on how much money the business can offer through the ICHRA. The ICHRA also permits organizations to offer different allowances to different employees, according to 11 employee classes:
- Full-time employees
- Part-time employees
- Salaried employees
- Hourly employees
- Seasonal employees
- Temporary employees working for a staffing firm
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees based in different locations, according to rating areas
- A combination of two or more of the above
Why your organization needs ICHRA plan documents
As an employee health benefit, the ICHRA is subject to ERISA.
ERISA Section 402 states that every employee benefit plan be “established and maintained pursuant to a written instrument,” or plan document. ERISA also requires the organization to make the document available to employees and their families.
Employers must also create a summary plan document (SPD), which provides a summary of the full document to participants. While the plan document is written in legalistic language, the SPD must be written so the average plan participant can understand it.
ERISA § 2520.102-3 outlines what the SPD should include, including participants’ benefits, rights, and obligations under the plan.
There are no specific penalties for failing to meet these requirements, but an employer will be subject to IRS fines if ICHRA participants ask to see the plan document and the employer doesn’t produce it.
Additionally, the employer could subject itself to fines if it doesn’t deliver the SPD to participants within 120 days of the ICHRA’s creation. For new participants in an existing ICHRA, employers have 90 days to deliver the SPD.
The 10 items your ICHRA plan documents must include
ERISA outlines several items each plan document must include. However, there are additional items relating to the ICHRA that businesses should also include as a best practice.
We’ll list the 10 items your ICHRA plan documents should include, note whether that item is required by ERISA, and explain each item in detail below.
The 10 items are:
- Named fiduciaries and plan administrators and their responsibilities*
- Eligibility requirements for the ICHRA
- Effective dates of participation
- Description of benefits provided and excluded
- How the ICHRA is funded and how it makes payments*
- Claims procedures
- HIPAA privacy officers and rules regarding protected health information (PHI)*
- Information on federal mandates*
- The procedure for amending the plan*
- The procedure for plan termination
*Specifically required by ERISA
Named fiduciaries and plan administrators and their responsibilities
The ICHRA plan documents must name one or more fiduciaries. These named fiduciaries have authority to control and manage how the ICHRA is administered.
By being named in plan documents, these individuals agree to accept fiduciary duty for ICHRA participants. This means they’ll act solely in the best interest of plan participants and pay only reasonable expenses.
The plan document should also name a plan administrator for the ICHRA and specify the administrator’s powers.
Potential plan administrator powers include:
- Interpreting the plan
- Designing ICHRA participant forms
- Communicating the ICHRA to participants
- Signing plan administration documents
- Maintaining relevant plan data
- Appointing people to assist in plan administration
Generally, the company is named as the fiduciary and plan administrator.
Eligibility requirements for the ICHRA
The plan document should outline participant eligibility requirements for ICHRA participation.
Under the Departments’ proposals, all participants must be covered by individual health insurance to participate in the ICHRA. Beyond that, the employer can structure eligibility according to the 11 employee classes defined above.
The spouses and dependents of eligible employees can also participate in the ICHRA.
Effective dates of participation
The plan document should define the effective dates of participation for employees eligible for the ICHRA.
Essentially, these dates specify whether the business imposes a waiting period on employees.
Businesses can choose an effective date as early as the employee’s start date or as late as 90 days after their date of hire.
Description of benefits provided and excluded
The plan document should include which medical expenses are eligible for reimbursement through the ICHRA and which aren’t.
According to the Departments’ guidelines, the ICHRA can reimburse any and all items listed in IRS Section 213(d) as “medical care.” The employer can make exclusions, but should provide an itemized list in the plan document if it does so.
In this section, the plan document should also specify monthly allowance amounts available to employees according to any of the 11 employee classes the employer uses to structure funding.
How the ICHRA is funded and how it makes payments
The plan document must specify how the company makes payments to and from the ICHRA.
This will largely depend on how the organization chooses to administer the benefit. There is no requirement that an ICHRA must be pre-funded, but some third-party administrators (TPAs) may require this.
Generally, funds don’t leave the organization until the employee’s request is approved for reimbursement.
The plan document must create and follow reasonable procedures relating to the claims process.
With an ICHRA, a “claim” is a reimbursement request from a participant.
To comply with ERISA requirements, ICHRA plan documents must create procedures governing:
- How the claim is filed
- How the administrator will notify participants of claims decisions
- How the business will handle appeals of denied claims
Employers have some freedom in crafting these procedures, but ERISA offers some specific guidelines.
HIPAA privacy officers and rules regarding protected health information (PHI)
If the ICHRA is being offered to an organization with fewer than 50 full-time employees, it isn’t required to comply with most HIPAA rules.
However, it is subject to the HIPAA Privacy Rules. These rules control the conditions under which the ICHRA can share protected health information (PHI) with the company.
To comply with these requirements, the plan document should designate HIPAA privacy officers. This group (or these individuals) will be exposed to participants’ PHI and are almost always the plan administrator.
The plan documents should also outline rules regulating the use and disclosure of PHI in accordance with HIPAA Privacy Rules. Finally, it should address PHI protection, in accordance with HIPAA Security Rules.
If the ICHRA is being offered to businesses with more than 50 employees, it needs to address other sections of HIPAA as well.
Information on federal mandates
The plan document must address how the ICHRA behaves in relation to certain federal mandates, including the Family and Medical Leave Act (FMLA) and Uniformed Services Employment and Reemployment Rights Act (USERRA).
How the ICHRA responds to these mandates largely depends on the size of the organization offering the benefit.
The procedure for amending the plan
The plan document must outline steps the organization will take if it decides to amend the plan.
These steps include naming individuals who have authority to amend the plan and the process the business will take in notifying employees of a “material amendment” to the plan.
ERISA requires that businesses notify participants no later than 210 days after the close of the plan year during which the amendment was made. However, if the amendment “materially reduces” the ICHRA’s benefits or services, the business must notify participants within 60 days.
The procedure for plan termination
The plan document should detail the business’s and participants’ rights if the business decides to terminate the ICHRA. This includes specifying how plan assets will be handled.
Options for creating ICHRA plan documents
Creating ICHRA plan documents isn’t a task employers should take lightly. These documents must follow all ERISA and IRS requirements to the letter, making it very easy for amateurs to stray into noncompliance. If the documents are challenged, it’s highly likely the business will face repercussions to the tune of $100 per day per employee.
To avoid this potential problem, many small businesses contract with an attorney to draft the plan documents and SPD. However, the estimated cost for this service can easily exceed $2,000. Even purchasing prewritten plan documents could cost at least $200.
Additionally, neither of these services provide plan amendment procedures free of charge. The best option is to avoid these difficulties by working with an HRA administrator like PeopleKeep.
PeopleKeep provides customers with personalized plan documents as well as free and immediate plan amendments. Additionally, PeopleKeep allows employers to administer the HRA online, document reimbursements, and leverage tools to ensure they remain compliant with federal and state rules.
Creating ICHRA plan documents is a requirement, but it’s not an easy one.
When the ICHRA becomes available in January 2020, businesses would do well to contract with an HRA software provider to create their documents and administer their benefit without stress.
Edit: This post has been updated to reflect changes in the final rule regarding the ICHRA, which was released in June 2019.