A conversation with Darcy Hitesman, Esq.
The workplace, and the employees within, is changing rapidly. More and more employees are working part-time, remotely, or even seasonally. As the work landscape changes, it is important for health insurance options to be adaptable. ICHRAs (Individual Coverage Health Reimbursement Arrangements) are a unique type of HRA that allows employers of all sizes to offer medical coverage to meet their diverse workforce needs.
Determining if an ICHRA is right for you and your company can be daunting, especially when weighing the legal ramifications. We are here to help. We sat down with Darcy Hitesman, Esq., the owner of HitesmanLaw, P.A., a leader in employee benefits law. Darcy has more than 30 years of experience as an employee benefits attorney, and she is an expert regarding HRAs and ICHRAs.
ICHRAs are relatively new. Are there legal requirements for offering ICHRAs?
Darcy: Just like HRAs, ICHRAs must comply with the general requirements applicable to traditional group health plans. This includes the written plan document, summary plan description and annual Form 5500 filing, and annual filing of IRS Forms 1094 and 1095. Other laws that apply to group health plans are also pertinent with ICHRAs, like COBRA and HIPAA.
ICHRAs are relatively new, so what happens if the rules associated with ICHRAs are not followed?
Darcy: ICHRAs were introduced to the marketplace on January 1, 2020. But, they are a special type of HRA, and HRAs have been around for close to 20 years. Just like traditional group health plans, failure to follow the rules associated with ICHRAs can result in regulatory penalties and litigation over benefits. And with respect to some of the rules, called “qualification requirements,” failure to follow may result in there being no ICHRA for any employees.
How are ICHRAs more flexible than traditional group health plans?
Darcy: ICHRAs offer flexibility for both employers and employees. With respect to employees, insurance needs vary among employees and change over time. ICHRAs allow individual employees the opportunity to change their health insurance year-over-year to find the benefits that meet their individual needs. With respect to employers, ICHRAs provide financial flexibility and budgeting stability. ICHRAs allow the employer to define the contribution amount available to reimburse its employees. No longer do employers have to offer all employees the same contribution amount for the same benefits coverage. Instead, employers can vary the contribution amount by 11 different classes (e.g., full-time, part-time or hourly), or by employee age or family status. Employees choose their own benefits menu through the selection of the individual coverage. No longer does the coverage have to be one-size-fits-all.
Budgeting for cost changes in traditional group coverage is difficult. Do ICHRAs make budgeting easier?
Darcy: Yes! ICHRAs are a defined contribution approach to health care, so budgeting is much more predictable for employers. For example, an employer wants to contribute $500 per month, per employee. This suddenly turns into a simple equation of contribution amount times the number of employees. This makes annual budgeting more predictable. In addition, the employer is not at the mercy of insurance carriers with respect to annual changes in the cost of group insurance coverage. The costs for traditional group coverage change annually. The extent of the increase is largely unknown until the last minute leaving little room for meaningful change. Employers must navigate these annual cost increases by reducing the coverage options, reducing the network or limiting prescription drug coverage, and often increasing the employee contribution for coverage. ICHRAs provide a meaningful alternative.
Employers carry liability with traditional group medical plans. Is this the same with ICHRAs?
Darcy: Employers carry a lot of responsibility when sponsoring a traditional group medical plan. Employers subject to ERISA are fiduciaries of the traditional group medical plans they sponsor, including the selection of the group insurance carrier or third-party service providers. ICHRAs limit the fiduciary responsibilities of the employer. With ICHRAs, the benefit is the reimbursement of the individual insurance policy. The choice of the individual policy is the employee’s choice. The employer is not responsible for the employee’s choice of insurance carrier or the menu of benefits provided by the policy selected by the employee. ICHRAs limit the employer’s fiduciary responsibilities.
What can we do to avoid legal mistakes when creating an ICHRA?
Darcy: It is helpful to turn to the experts when it comes to ICHRAs. An experienced service provider, like Nexben, understands how ICHRAs operate, how ICHRAs can help your company, and how to establish an ICHRA to realize immediate success.
Are ICHRAs better than traditional group plans?
Darcy: Ultimately, the answer depends on the employer and its mix of employees. ICHRAs are a great way to keep up with the changing work landscape and employee healthcare needs. For example, ICHRAs can be more flexible for employers who have employees who work part-time, seasonally or in remote work sites. Employers appreciate an ICHRAs’ ability to predict costs and remove liability, while also providing exceptional benefits for their employees.
Want to learn more about ICHRAs? Read our guide for understanding ICHRAs.
Read Darcy’s article, “From a Legal Perspective: Three Important ICHRA Benefits,” which appeared in Employee Benefit News.
