Understanding COBRA Under ICHRA
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a group health plan subject to the Employee Retirement Income Security Act (ERISA). Therefore, all ERISA rules apply to an ICHRA.
COBRA BASICS
Under traditional COBRA, employees losing eligibility can continue their health plan coverage. The company isn't required to pay a portion of the premium, and employers typically charge a 2% administrative fee.
COBRA OFFERING UNDER ICHRA
COBRA under ICHRA works the same, but with ICHRA, employees already own their health insurance coverage. That is one of the key benefits of ICHRA, the employee's health insurance is portable. The individual owns and manages their benefits. But as ICHRA is a group health plan, it's subject to COBRA. COBRA is essentially offered on the HRA itself. By electing COBRA, employees can continue receiving their ICHRA contributions but must pay the monthly premium to their employer to maintain this benefit. Additionally, they must continue paying their individual health insurance premiums.
WHAT DOES THIS MEAN?
Employees with ICHRA don’t need to elect COBRA to keep their individual health plan, as they already own their coverage. Electing COBRA is beneficial if the ICHRA reimburses both premiums and qualified expenses. If there's a remaining balance after paying the full premium, employees can use it for other qualified expenses.
Example: the individual receives a $500 monthly contribution. The individual's monthly premium payment is only $400. The individual can use the remaining $100 to spend on other qualified expenses such as out-of-pocket medical, prescription drug cost, dental or vision expenses.
ADVANTAGES OF ICHRA COBRA
ICHRA COBRA is advantageous if employees have a sizable balance of unspent HRA funds. Continued access to these funds is only possible through COBRA. Once the funds are depleted, paying for ICHRA COBRA may no longer be beneficial. At that point, the individual can then terminate ICHRA COBRA coverage, since it no longer makes sense to pay $510 per month to receive only $500 of value in return. The individual would then be better off to pay the monthly premium of $400 with personal funds.
DECISION-MAKING FOR EMPLOYEES
Employees who choose not to elect ICHRA COBRA should understand their claims runout period and when they will lose access to HRA funds. Note that if the ICHRA covers both premiums and qualified medical expenses, employees cannot fund a Health Savings Account (HSA) simultaneously.
Members electing not to take ICHRA COBRA should work with their HRA administrator to
understand their claims runout period and when they will lose access to HRA funds.
TERMINATION PROCESS UNDER ICHRA
- Notification: Employers must inform the ICHRA administrator of any terminations promptly.
- COBRA Notices: Eligible employees must receive COBRA notices. ICHRA administrators can send these notices on behalf of the employer for an additional fee or provide templates for employer use.
- Employee Instructions: Employees should be informed of their COBRA options and how to continue individual coverage.
MAINTAINING HEALTH INSURANCE COVERAGE
If an individual only wants to keep their health insurance plan, they need to take over the premium payments directly with the insurance carrier. They must update their health insurance information accordingly. For those electing COBRA, coordination with the employer and ICHRA administrator is necessary.
Further Information
Check out our other COBRA articles for more insights and details about COBRA.