Thorny Laws That ICHRA Vendors Should Consider

Individual Coverage Health Reimbursement Arrangements (ICHRAs) have continued to grow in popularity since their inception in 2019. (See our article here summarizing the 2019 rule establishing ICHRAs.) While initially it seemed that ICHRAs were more attractive for small employers looking for a cheaper alternative to the small group insurance market, mid-sized and large employers have increasingly begun exploring these arrangements. (See data here from the HRA Council.) With employers of all sizes adopting ICHRAs, both established service providers and start-ups are offering ICHRA administration and related services.

While the simplicity of ICHRAs can make them a great fit for many employers, ICHRA vendors face a complex and often unclear regulatory environment, especially given that most of the traditional group health plan laws do not perfectly apply to the ICHRA structure. For some of these laws, the legal obligation to comply might technically fall on the employer (as the plan sponsor), but ICHRA service providers often try to comply, so their product is an off-the-shelf “solution” for their employer clients. Below is a high-level summary of just some of the compliance challenges for ICHRA vendors.

• ICHRA Notice. As discussed in our article here, employers must distribute an annual notice (the regulatory model notice can be found here) to employees at least 90 days before the start of the ICHRA plan year. There is confusion in the industry whether there is an exception to this 90-day advance notice requirement for new ICHRAs or whether the exception in the rule is limited to just new employers. A reasonable interpretation suggests it might be limited to new employers, not any new ICHRA plan. Industry groups have reached out to lawmakers for clarification and more flexibility on this issue.

• COBRA. As noted in our article here, there is no special carve-out from COBRA for ICHRAs, so generally employers with at least 20 employees have COBRA obligations attached to their ICHRA. Applying COBRA to an ICHRA can be awkward and not make complete sense in several situations. One issue is that COBRA applies to the group health plan (i.e., the ICHRA), not the individual health insurance policy, so there can be a disconnect on what coverage is being continued. Further, the law permits passing the entire COBRA premium onto the individual, plus a two percent administrative fee, so there are some situations where a former employee might pay more than the actual ICHRA allowance to continue ICHRA coverage. Regardless, COBRA must be dealt with, including the COBRA election notice.

• ACA Employer Mandate. For those employers subject to the Affordable Care Act’s employer mandate requirements (generally, employers with at least 50 full-time employees), an ICHRA can be used to satisfy these requirements, as discussed in our article here. ICHRA vendors are oftentimes expected to have tools in place to easily set up ICHRAs to comply with employer mandate requirements.

• Summary of Benefits and Coverage (SBC). Despite the regulatory model SBC (found here) geared towards traditional group health plans, the guidance indicates that SBC requirements attach to HRAs (including ICHRAs). ICHRA vendors take different approaches on how best to complete HRA SBCs, but regardless it is a legal requirement for ICHRAs.

• IRS Form 1095-C. IRS Form 1095-C reporting can be tricky when applied to ICHRAs, especially as most in the industry think of IRS Form 1095-C as it relates to traditional group health plans. However, recent versions of the IRS Form 1095-C instructions (found here) specifically address the use of ICHRAs and how to use specific codes to indicate compliance with employer mandate requirements.

• PCORI Fee. As confirmed by the IRS (webpage here), the PCORI fee (background found here) generally applies (with some exceptions) to HRAs, which includes ICHRAs. IRS Form 720 (here) is used for submitting these fees.

• Summary Plan Description (SPD). ERISA applies to an ICHRA like any other traditional group health plan, as discussed in our article here. This means that standard ERISA documentation requirements apply for ERISA-covered employers (generally, private-sector or commercial employers), such as an SPD, plan document, and an annual Form 5500 (link here) (if applicable based on employer size).

• Section 111 Medicare Reporting. Regulatory guidance makes clear that Section 111 reporting (background found here) applies to HRAs, including ICHRAs. There is an exemption for HRAs with an annual benefit of less than $5,000. Aside from these small HRAs, ICHRA third-party administrators (TPAs) must comply with Section 111 reporting.

• TPA License. Most group major medical plan administrators appreciate that they may need to obtain TPA licensure from certain states to process claims in that state; however, this requirement can sometimes be overlooked in the HRA administration space. The scope of licensure varies by state, but a state’s general statutory scope can sometimes include administrators of health account-based plans. Exceptions may apply, such as an exemption for ERISA-only plans or a limited number of covered members in that state. Foley has extensive research and a 50-state survey on this topic.

• Payment Facilitator & Money Transmitter Laws. A lot of ICHRA vendors will facilitate payment to individual insurance carriers as part of their product offering. This can be done via ACH transfers, wire transfers, credit cards, debit cards, custodial accounts, and FBO (For Benefit Of) accounts, just to name a few. Depending on payment methods, compliance requirements might be triggered, such as Payment Card Industry Data Security Standard (PCI DSS), Money Services Business (MSB), or Money Transmitter License (MTL) requirements. Foley has a team of experts in this space as it relates to health benefit administrators (including ICHRA vendors).

Foley works with a wide range of health benefits administrators and other health plan service providers, including several types of companies in the ICHRA space. Our Health Benefits Practice has worked through these thorny laws that apply to ICHRA vendors and has worked with various industry groups in the ICHRA space, including the HRA Council, who are reaching out to lawmakers about revising some of these challenging laws to better align with how ICHRAs are run in operation.

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