ICHRAs (Individual Coverage Health Reimbursement Arrangements) are a flexible and cost-effective alternative to group health benefits. But ACA compliance is a big question mark for many people who are considering making the transition. At SureCo, we equip you to get—and stay—solidly compliant.
Let’s talk about how ICHRAs meet the ACA employer mandate, and what you need to know about ICHRAs and the Employee Retirement Income Security Act (ERISA).
What Is the ACA Employer Mandate?
The Affordable Care Act (ACA) has a mandate for employers with 50 or more full-time equivalent employees to offer health insurance coverage to their employees.
It applies to:
- Full-time employees who work an average of at least 30 hours per week
- Full-time equivalent employees, which are calculated by combining the total number of hours worked by part-time employees and dividing by the number of hours that would be considered full-time.
When evaluating your compliance with the ACA mandate, you need to consider three main components: Minimum Essential Coverage, Minimum Value, and Affordability.
- Minimum Essential Coverage refers to health insurance that covers a core set of benefits outlined by the ACA, such as preventive services and hospitalization.
- Minimum Value refers to the coverage's ability to pay for at least 60% of the total allowed costs of benefits provided under the plan.
- Affordability refers to the cost of coverage for the employee, which must be considered affordable based on certain criteria outlined by the ACA.
If you set up an ICHRA that meets the affordability and minimum value standards outlined in the ACA, it will generally be considered compliant with the Employer Mandate. All individual plans covered by an ICHRA also meet the MEC and MV requirements, so there is a built-in element of compliance there, too.
What about ERISA?
An ICHRA is something you sponsor, you design, you fund, and so that is subject to ERISA.
-Nick J. Welle, Partner Employee Benefits at Foley & Lardner LLP
Since an ICHRA is an employee benefit plan, it falls under ERISA regulations. For an ICHRA to be compliant under ERISA, you need a formal plan document that defines your benefits offering and is made available to employees and their families. The IRS could fine you if employees request to see the plan document and you fail to provide it.
Here’s what needs to be in your ICHRA plan document:
- The responsibilities of named fiduciaries and plan administrators
- Requirements for ICHRA eligibility
- The effective participation dates
- A description of benefits, both included and not included
- The funding and payment process of the ICHRA
- Procedures for claims
- HIPAA privacy officers and the special rules surrounding protected health information (PHI)
- Information regarding federal mandates
- The process of amending the plan
- The process for plan termination
You also need to include a summary plan description (SPD). This is a summary of the complete plan document for eligible employees. The SPD must be clear, comprehensive, and easily understandable by employees.
The SPD provides information on:
- Detailed description of plan benefits
- When an employee can participate in the plan
- How you calculate the services and benefits
- Who can contribute to the plan
- When benefits become vested
- When and in what form you pay out benefits
- How to file a claim for benefits
- What features the benefits include
- Rights for plan participants
You must provide an SPD to eligible employees within 120 days (about 4 months) of creating the ICHRA, or you could be fined. In the case of employees newly enrolled in an existing ICHRA, you have 90 days (about 3 months) to deliver the SPD. If you make any changes to your SPD, you’ll need to provide a summary of material modification to employees.
It's important to understand and comply with ERISA regulations when offering an ICHRA. Non-compliance can lead to penalties, lawsuits, and reputational damage. To ensure compliance, we recommend seeking professional legal advice from benefits experts who are knowledgeable about ERISA and its implications for ICHRA.
Download the 2024 Compliance Guide to learn more about being ACA compliant with an ICHRA, including ensuring you have all your necessary forms in place, creating an ICHRA notice, and ensuring compliance with the 3:1 ratio.
