Understanding Your ERISA Obligations When Offering Individual Coverage HRAs
Whether you run a small business or have hundreds of employees, you can capitalize on a wide range of health care options. For instance, you can offer your employees an individual coverage health reimbursement arrangement (“ICHRA”).
Becoming available to employers earlier this year, an ICHRA lets employers like you better control your health care costs by providing defined non-taxed reimbursements for your employees’ qualified health insurance costs. Your employees also benefit in that they can select individual health insurance that best fits their wants and needs.
Simply put, there is mutual value for both employers and employees. If you are interested in offering ICHRAs to your employees, however, you will need to comply with some stringent regulations. In this post, we want to discuss one of those regulations. It is the Employee Retirement Income Security Act of 1974, which is commonly known as ERISA.
ERISA Requirements for ICHRAs
Before delving into these requirements, it’s important to note that the following is not legal advice. ERISA is a statute with many provisions. You’ll want to speak with your organization’s attorney to ensure that you are in full compliance.
As you may or may not know, ERISA is a landmark federal law that sets minimum standards for many retirement and health care plans in the private sector. ERISA applies to ICHRAs because ICHRAs are technically considered to be group health plans. Therefore, employers like you need to understand and follow your ERISA guidelines when administering your ICHRA.
The most notable guidelines that you’ll need to follow center on notice and reporting. Specifically, ERISA requires your company to provide a so-called summary plan description (“SPD”) to your employees. Moreover, you must offer the SPD free of charge.
Essentially, the SPD is a document that tells your employees what the plan provides for and how it operates. The SPD includes important information, like a description of the benefits received, the eligibility requirements to receive benefits, a statement of rights and obligations for plan participants and beneficiaries, and an explanation of how the plan is operated. To view all of the necessary items that you must include in the SPD, click here.
Ultimately, the SPD is one of the most important documents related to your ICHRA. If you decide to change your health care plan, you must also notify participants of the ICHRA. Specifically, ERISA forces you to send plan participants a revised summary plan description or a summary of material modifications, which is included in a separate document and must also be provided free of charge.
The SPD is relatively straightforward. That being said, you may wonder whether ERISA applies to the individual insurance plans that employees purchase. After all, one of the benefits of ICHRAs is that your employees can select individual health insurance plans that suit their needs.
Ultimately, the answer is it depends. To reiterate, employees have the responsibility for securing their own health insurance from the Health Insurance Marketplace. The plans that your employees purchase may not fall under ERISA (specifically Title 1) if one of several conditions is met. You can see these conditions on page 218 of this IRS guidance. As you’ll see, this includes the following:
The purchase of any individual health insurance coverage is completely voluntary for employees.
The employer, employee organization, or other plan sponsor does not select or endorse any particular issuer or insurance coverage.
Reimbursement for non-group health insurance premiums is limited solely to individual health insurance coverage.
The employer, employee organization, or other plan sponsor receives no consideration in the form of cash or otherwise in connection with the employee’s selection or renewal of any individual health insurance coverage.
Each plan participant is notified annually that the individual health insurance coverage is not subject to ERISA.
To reiterate, you just need one of these conditions to apply. If you are looking for more clarification on these conditions, we encourage you to look at the IRS guidance.
Complying with ERISA
While ICHRAs can be a win-win for both you and your employees, you’ll want to ensure that you are complying with all of your ERISA obligations. To reiterate, we encourage you to speak with legal counsel to ensure that you’re in full compliance. Upon doing that, you’ll be able to leverage everything that ICHRAs have to offer.