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Individual Coverage HRAs–Worth An Existential Crisis?

October 24, 2019

Individual Coverage Health Reimbursement Arrangements or ICHRAs, have been on our minds since the Trump Administration released final rules formally allowing businesses to pay for their employees’ individual health insurance premiums under certain conditions. When a proposed rule recently came out to create compliance safe harbors for companies that set up ICHRAs, we started talking about them even more.

Of course, we’ve gone to the nerd heaven that is pondering nuances related to ICHRA establishment and implementation. But eventually our conversations always wrap around to the same question – Are individual coverage HRAs really going to transform the world of employee benefits, especially right away? Should ICHRAs provoke an existential crisis?

We’ve concluded no.  Here’s why:

They are tricky. Even though ICHRAs are described as a silver bullet for employers who want to offer health insurance without getting their hands dirty, that’s fake news. Individual coverage HRAs are self-funded health plans, subject to ERISA, parts of the ACA, COBRA, HIPAA and Section 105(h), Section 125 and Medicare rules. That alphabet soup comes with a side of significant compliance responsibilities for group plan sponsors.

ICHRAs don’t allow for a true cost comparison. Employees can’t be offered both an individual coverage HRA and a traditional major medical plan. So a company needs to pick one option to offer to each legitimate class of employees. If an employer chooses an ICHRA, then it must give affected employees a detailed notice about this plan option at least 90 days ahead of time in almost all circumstances. That means, to craft a valid notice and meet the deadline, most businesses must commit to offering an individual coverage HRA at least 120 days before open enrollment starts. That timeframe is much earlier than when next year’s premium rates will be available for any traditional coverage alternative. So, an employer can never perform a real cost/benefit analysis.

The ICHRA safe harbors aren’t entirely safe. The two ICHRA regulations out so far set up some compliance safe harbors for employers. But even still, complications, liability, and cost issues persist. The proposed affordability safe harbor requires applicable large employers (ALEs) to base their contribution level on the price of the cheapest silver plan, rather than a bronze plan that would be more representative of traditional “minimum value” coverage. There is no age-rating safe harbor, so ALEs will need to customize contribution amounts for each employee to keep costs in check. Employers will also need to contend with existing Age Discrimination in Employment Act rules to ensure a fair and legal contribution for all employees. That’s a great deal of work, it may impact costs, and it may generate employee complaints.

Nondiscrimination rules will also be an issue. The rules do provide partial nondiscrimination safe harbors, but an employer plan could still fail Section 105(h) testing with an ICHRA offering. Plus, it remains unclearhow individual coverage HRAs can meet the current Section 125 plan nondiscrimination testing requirements.

The provisions to protect plan sponsors from assuming ERISA fiduciary responsibility for their employee’s individual coverage raise questions too. A mistake in this area could trigger incredible legal and financial obligations for the employer.

An ICHRA might make people you are trying to please unhappy. Offering an ICHRA an is all-in decision. But recent survey data shows that 71 percent of employees really like their current employer-provided coverage, even though costs are a concern. Fifty-six percent of covered employees say that their current health coverage package is a key factor keeping them in their current job. ICHRAs represent a total shift from traditional group benefits. Plus, even an ICHRA contribution that meets ACA “affordability” standards may not be enough money to cover all of an employee’s coverage costs. So, a business owner could invest a lot of time, money and effort on an ICHRA program and wind up with some pretty disgruntled employees.

There are still a lot of known unknowns. The Trump Administration has promised more detailed guidance about how employers can avoid assuming ERISA fiduciary responsibility for the individual coverage their employees buy with HRA funds, but so far that guidance hasn’t materialized. Employer reporting instructions and forms are also still outstanding, as are further clarifications about the applicability of Section 125 rules. Since there are still requirements to finalize, employer reporting companies and HRA service providers can’t confirm exactly how they will be able to help employers yet. All of these factors should make many employers cautious, particularly for 2020.

There are definitely some employers and brokers who find the whole ICHRA concept inherently appealing, and others that think it is a good option for specific classes of employees. To those people, we say go for it – there is a path for you to move forward. We also say that compliance assistance and a sound liability strategy are really critical with this benefit plan option, so let’s talk a little bit more, because we might be able to help.

But if you are skeptical, or you think your clients, company, and employees will always prefer a more traditional group benefit arrangements, just know that you are in good company!

Now, beyond wondering about this existential crisis, we also have an important question for all of you. What do you call this new creation? When the two of us talk, we’ve been using the anacronym ICHRA. We pronounce it ICK-hrah, with a heavy emphasis on the ICK. But maybe our wariness is affecting the way we enunciate? Please tell us—what are your thoughts about the introduction of Individual Coverage HRAs into the group benefit space? And is there a cute name for them that we can all agree on? Friends, let’s discuss!