By: HUB’s EB Compliance Team
In late 2018, we reported that the Departments of Treasury, Labor, and Health and Human Services (the “Departments”) initiated a reversal of their earlier positions and allowed employers to reimburse employees who purchase individual health insurance coverage through an Individual Coverage Health Reimbursement Account (an “ICHRA”). In the initial set of rules that followed, questions emerged concerning:
1.) Whether an ICHRA must satisfy the ACA’s employer mandate; and
2.) Whether as a self-funded health plan an ICHRA must satisfy certain non-discrimination rules.
Proposed rules were issued late in 2019 to address these issues. Prior to the inauguration of President Biden, the Departments announced Final Regulations. There is close alignment between the proposed and announced final set of regulations. However, of key importance is that the Final Regulations have yet to be published in the Federal Register and are currently being reviewed by the Biden Administration. Therefore, they could be withdrawn or revised. As a result, employers should not rely on them at this time.
EEOC Offers Opinion Regarding the ADEA Relevance to ICHRAs
Separately, the EEOC issued an Opinion Letter on January 7, 2021 addressing whether an employer’s ICHRA would be discriminatory under the Age Discrimination in Employment Act (“ADEA”). The EEOC opinion letter can only be relied on the person to whom it was issued. However, like other informal guidance, it is informative of the EEOC’s views on the subject.
Since an ICHRA is an employer-funded account provided to employees in exchange for work, it is a fringe benefit of employment and is therefore subject to the ADEA. If the same amount is made available under the ICHRA to all plan participants regardless of age, the EEOC said ICHRA does not violate the ADEA prohibition against providing lesser compensation to older employees on the basis of age. This could have been an issue since premiums for individual coverage increase due to age. Therefore, an ICHRA that makes the same amount available to all employees means the individual health insurance is more expensive for older employees. However, the EEOC concluded that the individual insurance is not an employer benefit since it is selected by the employee. Notably, the letter does not address what would happen if the individual insurance was considered part of the employer’s ERISA plan. This could happen if the employer is not 100% hands off, as we previously described. Therefore, employers should ensure that they are following those guardrails to avoid a potential ADEA issue as well.
That prohibition against providing lesser compensation to older employees on the basis of age is also (perhaps obviously) not violated when an employer offers its older employees a greater level of contribution to the ICHRA as permitted by the ICHRA rules. This is true regardless of whether the contributions reflect a percentage of the employee’s premium for individual health insurance or whether the amounts increase with an employee’s age based on other terms.
Takeaways
The final IRS regulations provide helpful guidance on how ICHRA sponsors can avoid ACA employer mandate penalties and Section 105(h) nondiscrimination concerns. However, given that they are caught in the Biden Administration’s regulatory freeze, employers should be cautions in moving forward based on these rules until they are published in the Federal Register. They could be subject to change before then and employer should not rely on them at this point.
While the EEOC opinion letter also provides a helpful roadmap for avoiding age discrimination concerns, it is not binding guidance (other than for the person to whom it was issued). Therefore, while employers can take some comfort from it, the possibility remains that the EEOC could issue rules later that take a different approach. Regardless, employers should be mindful that the analysis may not apply if the individual health insurance policies are determined to be part of the employer’s ERISA plan.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.