For those with an ICHRA, it’s crucial to understand the rules regarding employee attestation and verification of individual health coverage. These substantiation requirements are applicable at the start of each ICHRA plan year and each time an employee submits a reimbursement request.
ICHRAs allow employers to offer unique benefit solutions that work best for their business. These benefits include flexible reimbursement allowances for eligible medical expenses.
Substantiation of Individual Coverage
With an ICHRA, employers set an allowance of tax-free amounts that employees can use to buy individual health insurance coverage and other healthcare costs. They must then submit proof that they’ve incurred these expenses to receive reimbursement. This allows employees to shop for a plan that fits their needs and personal budgets.
Sometimes, the employer may want to vary this amount based on employee class, such as full-time vs. part-time, salaried vs. hourly, or family size. However, these variances must not result in the HRA becoming an ERISA plan. To avoid this, the employer must provide an annual notice to each participant informing them that their ICHRA is not an ERISA plan and that they’re responsible for complying with the ACA individual mandate.
The notice must also describe the reasonable procedures for substantiation and include a sample attestation form. Substantiation consists of an employee’s written attestation that they or their dependents, if applicable, are enrolled in individual health coverage with a cost not less than the amount available under the ICHRA and documentation from the health insurance issuer that shows this enrollment.
Proof of Coverage
An ICHRA is a great option for employers looking to offer a modern, personalized health benefit that’s cost-effective and more flexible than traditional group plans. However, implementing and administering an ICHRA requires compliance with specific rules about reimbursements, plan substantiation, and other requirements. If you’re considering offering an ICHRA, it’s best to partner with a third-party administrator, offering robust onboarding, employee communications, and compliance support.
Unlike group insurance, an ICHRA lets you set a tax-free monthly allowance for employees on individual health insurance and other medical expenses. It’s also easier to manage than a traditional group health plan without worrying about renewals, participation rates, doctor networks, and annual premium increases.
You can offer a single ICHRA for your entire workforce or create employee “classes” with different rules and reimbursement limits, depending on the employee’s status (full-time, part-time, etc.). But remember that not all types of individual health insurance are compatible with ICHRA, so be sure only to include qualifying policies in your ICHRA offerings. You can offer an ICHRA along with a health FSA, dental, or fixed indemnity coverage to provide additional options for employees.
Substantiation of Dependent Coverage
Many questions we hear from clients are centered around what employers should do regarding ICHRA compliance. However, it’s just as important to understand what not to do, particularly for larger companies.
The IRS regulations make clear that an ICHRA cannot be combined with a group health insurance plan for the same class of employees. This is because ICHRA reimbursements are considered contributions to a “health and welfare plan,” meaning that they must be documented by an annual attestation by the participant (or the participant’s dependent) and must be based on qualifying medical expenses.
An ICHRA allows employers of any size to design an allowance for their employees to use monthly on individual health insurance plans and medical costs. This allows them to meet ACA employer mandate requirements without risking hefty penalties. However, an employer must ensure that the amount they set is “affordable,” the calculation for affordability uses a different methodology than that used to calculate premium tax credits. That’s why large employers need a team of benefits design experts who can help them set up their ICHRA in the most compliant way possible.
Substantiation of Group Coverage
An ICHRA allows employers to set allowances of tax-free amounts for their employees to use monthly on individual healthcare insurance premiums and other eligible medical expenses. Employers of any size can design ICHRAs to fit their company and goals. For example, they can set different allowances for classes of employees, such as full-time and part-time workers, hourly employees, etc.
They can also vary reimbursements within each class based on definitions such as family size or employee age. However, they must ensure that the overall class sizes are adequate to satisfy ACA requirements.
A significant benefit of an ICHRA is that it is relatively hands-off compared to managing a traditional group health plan. Rather than dealing with complicated deductibles, coinsurance rates, single versus family limits, and the hassle of a census upload each year, employers can provide their employees with an ICHRA to purchase individual coverage in their local marketplace.
Substantiation of Employee-Faced Communications
ICHRA compliance requires a great deal of preparation and planning. It’s critical to work with an experienced third-party administrator to help ensure the success of your plan. Look for an administrator who understands ACA rules and regulations, including those surrounding HIPAA and other procedures related to employee privacy.
In addition to offering an ICHRA that provides the level of flexibility required by the IRS, your administrator should be familiar with how to communicate your ICHRA to employees properly. This is especially important since the ICHRA is a new concept to most of your workforce.
The administrator you partner with should also know how to design an ICHRA that the IRS deems “affordable.” To do this, they must understand the minimum class size rules and be able to provide you with documentation that shows reasonable assumptions were made at the beginning of the year to guarantee that your ICHRA meets the requirements.