The individual coverage HRA (ICHRA) is a health benefit for organizations of all sizes to reimburse their employees, tax-free, for individual health insurance premiums and other qualifying out-of-pocket medical expenses. It allows employers to design and customize a health benefit for their employees that will fit their needs.
There are many rules surrounding the ICHRA that can change from year to year, and understanding these requirements is key to staying compliant.
One of the first steps in setting up an ICHRA is to create formal plan documents which are required by the Employee Retirement Income Security Act (ERISA) and the IRS.
In this article, we’ll go over why your organization needs ICHRA plan documents, what the documents must include, and the options you have to create those documents, including using an HRA administration software like PeopleKeep.
Looking for a specific topic? Skip to a section below!
- What is an individual coverage HRA (ICHRA)?
- Why your organization needs ICHRA plan documents
- Ten items your ICHRA plan documents must include
- 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
- Options for creating ICHRA plan documents
What is an individual coverage HRA (ICHRA)?
An ICHRA allows all businesses, regardless of size, to reimburse their employees for their healthcare expenses, such as individual health insurance premiums and all of the medical expenses outlined in IRS Publication 502.
Because reimbursements are tax-free, your employees will receive similar tax benefits to those received by employees who are enrolled in traditional group insurance plans.
Getting started with an ICHRA is easy. The employer sets a monthly fixed allowance for each employee. After attestation of individual insurance coverage, employees spend that money on eligible healthcare expenses and submit proof of the expense to their benefit administrator. After the documentation is reviewed, the employer reimburses the employee up to their allowance amount.
There are no caps on how much money the employer can offer through their ICHRA and they also have certain flexibility on eligibility. For example, employers can decide eligibility based on employee classes, as well as set different allowances for employees in 11 different classes.
The employee classes, including:
- 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
Even better, an ICHRA can be offered as a stand-alone health benefit or as an addition to an organization’s health benefit, alongside group health insurance. However, no one employee can be offered a group health plan and an ICHRA—they must only be offered one benefit while another class of employees are offered the other.
Why your organization needs ICHRA plan documents
Because the ICHRA is an employee health benefit, it’s subject to ERISA. ERISA Section 402 states that every employee benefit plan must 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 a legal manner, the SPD must be written so the average plan participant can understand it clearly.
To assist with this, 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 receive more 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.
Ten 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.
Below we explain in detail the ten items your ICHRA plan documents should include and confirm if that item is required by ERISA.
1. 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.
2. Eligibility requirements for the ICHRA
The plan document should outline ICHRA participant eligibility requirements.
Under the Departments of the Treasury, Labor, and Health and Human Services proposal, 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.
3. Effective dates of participation
The plan document should define the effective dates of participation for employees eligible for the ICHRA. These dates specify whether the business imposes a waiting period on employees.
Employers can choose an effective date as early as the employee’s start date or as late as 90 days after their date of hire.
4. Description of benefits provided and excluded
The plan document should include which medical expenses are and aren’t eligible for reimbursement through the ICHRA.
According to the Departments’ guidelines, the ICHRA can reimburse eligible expenses listed in IRS Section 213(d) as “medical care.” The employer can make exclusions, but should provide an itemized list in the plan document to clarify those exclusions.
In this section of the document, employers should also specify monthly allowance amounts available to employees according to any of the 11 employee classes the employer sets.
5. 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’s 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 expense is verified and approved for reimbursement.
6. Claims procedures
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.
7. 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’s still 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 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 an ICHRA is being offered to businesses with more than 50 employees, it needs to address all other sections of HIPAA as well.
8. 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.
9. 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.
10. 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 exactly, making it easy for novices to be noncompliant. If the documents are challenged, it’s highly likely the business will face daily penalties of $100 per employee until the documents are corrected.
To avoid this problem, many small businesses contract with an attorney to draft the plan documents and SPDs. However, the estimated cost for this convenience can often exceed $2,000. Even prewritten plan documents could cost at least $200.
Additionally, neither of these services provide free plan amendment procedures. The best option to avoid these difficulties is 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 employers remain compliant with federal and state rules so they can keep complete control over their own time and money.
Designing your ICHRA benefit and meeting plan document requirements can be a difficult task. There are several complicated regulations that need to be met, and if you’re found out of compliance, you could face daily fines until you correct the errors.
If keeping up with changing regulations sounds overwhelming, PeopleKeep can help! Our software automates the time-consuming tasks of legal documentation, compliance, and expense verification, so you can focus on running your business. If you’re ready to get started with an ICHRA and PeopleKeep, schedule a call with us and we’ll get you started.
This article was originally published on May 7, 2019. It was last updated November 1, 2021.