🎓 ICHRA School

Module 7: Administration & Ongoing Compliance

Overview: The Pilot's Checklist

The plan is built. The enrollment is done. The plane is in the air.

But the job isn't done. For the next 12 months, you must pilot this plane through a series of monthly and annual checkpoints.

The Good News: You don't need to manually fill out tax forms.

The Job: You should monitor the TPA and Client are hitting their deadlines.

This module is your "Compliance Autopilot" guide. It explains what happens in the background to keep the IRS happy and the plan running smoothly.

1. Daily Operations: The "No Receipt, No Pay" Engine

In a traditional HRA, employees stuffed receipts in a shoebox. In a modern ICHRA, compliance is real-time.

The Gatekeeper (Substantiation)

To prevent tax fraud, every dollar leaving the employer's account must be matched to a valid expense. The TPA handles this automatically.

  • The Rule: No Proof = No Money.
  • The Workflow: When an employee pays a premium, they upload the receipt (or the carrier feed validates it). The TPA system checks:

1. Is it for the right month?

2. Is the policy Minimum Essential Coverage (MEC)?

3. Does the amount match the request?

The Monthly Pulse Check (Attestation)

  • The Rule: The IRS requires proof of ongoing coverage every single month, not just once a year.
  • The Automation: On the 1st of every month, the TPA system emails the employee: "Do you still have your Blue Cross plan?"
  • Employee Clicks YES: Funds are released.
  • Employee Ignores: Funds are held.
  • Employee Clicks NO: Funds are Suspended.

The Suspension Protocol

If an employee stops paying their premium, the TPA acts as the "Bad Cop" so the employer doesn't have to.

1. Suspension: The account is locked. No new money goes in.

2. The "Unused Balance" Trap: If the employee has $500 saved up in their HRA, they generally cannot access it while their insurance is cancelled. They must get valid coverage again to unlock their "wallet."

3. Reinstatement: The employee must buy a new plan (usually during the next Open Enrollment or a valid SEP) to unlock the account.

2. The Compliance Calendar (Year-At-A-Glance)

Put these dates in your CRM. Your TPA will do the work, but you must remind the client to sign the forms and cut the checks.

Quarterly: Section 111 Reporting (MMSEA)

  • Who Files: Employers with 20+ Employees (Applicable to MSP Rules).
  • What is it: A mandatory digital report sent to CMS (Medicare) listing which employees have ICHRA coverage. This prevents Medicare from paying "Primary" by mistake.
  • The TPA Role: Most full-service TPAs handle this complex data exchange automatically.
  • Agent Check: Verify your TPA does this. If they don't, your client is exposed to penalties of up to $1,000 per day per claimant.

January 31: Form W-2 Reporting

  • The Task: The Payroll Dept needs to report the cost of coverage.
  • The TPA Role: Provides a "Total Benefit Paid" report for the year.
  • The Audit:
  • Box 1 (Wages): Should be lower if employees paid premiums Pre-Tax.
  • Box 14 (Optional): We recommend listing the "ICHRA Benefit" here so employees see the value they received.

January 31: Form 1095-C (The "Big One")

  • Who Files: ALEs (50+ Full-Time Employees).
  • The Task: This form proves to the IRS that the employer offered "Affordable" coverage (avoiding the sledgehammer penalty).
  • The Automation: Your quoting platform and the TPA generate these codes based on the census data.
  • Line 14 (Offer Codes): Look for 1L (ICHRA offered), or 1M / 1N (ICHRA offered to dependents).
  • Line 15 (Cost): Shows the "Employee's Cost" for the Silver Plan (proving affordability).
  • Line 16 (Safe Harbor): 2F (W-2 Safe Harbor) explains why you aren't paying a penalty.

July 31: Form 720 (The PCORI Fee)

What is it: A small IRS tax on health plans (~$3-$ 4 per head) to fund research.

  • The Task: The Employer must file Form 720 and pay the fee.
  • The TPA Role: The TPA provides the "Average Covered Lives" count. The Employer writes the check.

July 31: Form 5500

  • Who Files: Employers with 100+ Participants on the plan.
  • The Trick: Remember the "Wrap Document" from Module 6? This allows the client to file ONE Form 5500 for ICHRA + Dental + Vision, rather than three separate returns.

October 15: Medicare Part D Notice

  • The Task: You must tell employees if their drug coverage is "Creditable" (as good as Medicare).
  • The Risk: If you fail to send this, seniors get hit with a permanent late-enrollment penalty by Medicare. The TPA usually provides the template letter.

3. Managing "The Exit": Terminations & COBRA

What happens when an employee quits? In Group Health, they keep the plan via COBRA. In ICHRA, they already own the plan, so the rules are weird.

The Distinction

1. The Insurance Policy: The employee owns it. When they quit, they keep the policy. They just have to start paying 100% of the bill themselves. This is Portability, not COBRA.

2. The HRA Allowance: This is the employer's money. This is subject to COBRA.

The "COBRA for Cash" Offer (Federal COBRA 20+)

If the employer has 20+ employees, they must offer COBRA on the HRA account.

  • The Offer: "You can pay us a premium to keep receiving your ICHRA allowance."
  • The Math: How do you calculate the cost? The IRS allows two methods:
  • Actuarial Method: An estimate of usage.
  • Past-Cost Method: Based on prior year averages.
  • The Simplified Reality: Most employers simply charge the Full Monthly Allowance + 2% Administrative Fee.
  • Example: Employer gives $500. Terminated Employee pays Employer $510. Employer puts $500 back into the HRA.

Why would anyone do this? (The Strategy)

It seems silly to pay $510 to get $500 back. Most employees decline. However, it makes sense in two cases:

1. The "Spend Down": If the plan allows rollover and the employee has $3,000 in their HRA, they might pay the COBRA fee for a few months just to access that $3,000 balance.

2. The "Health Wallet": If the HRA reimburses medical expenses (not just premiums), paying the fee might be worth it to get reimbursed for a high-cost claim.

Small Group "Mini-COBRA" (<20 Employees)

If your client has fewer than 20 employees, they are exempt from Federal COBRA, but they may be subject to State Mini-COBRA laws (See Addendum K: Mini-COBRA States).

  • The Check: You must verify if your specific state includes HRAs in its definition of "group health coverage." If so, you must offer continuation similar to the federal rules above.

Agent Checklist for Terminations

When an employee leaves, ensure these three steps happen:

1. COBRA Election Notice: Sent within 14 days of termination.

2. Notice of Portability: Remind the employee: "Your health insurance stays active. You just need to update your payment method with the carrier to pay them directly."

3. SEP Trigger: Remind the employee that losing the HRA contribution is a Qualifying Life Event. This triggers a Special Enrollment Period (SEP) if they want to switch to a cheaper plan or claim subsidies on the Exchange now that they have no employer offer.

4. Testing & Protocols

Finally, the software runs safety checks in the background to prevent discrimination.

Section 105(h) Non-Discrimination Testing (NDT)

  • The Risk: You cannot discriminate in favor of "Highly Compensated Individuals" (HCIs). You can't give the CEO $10,000 and the receptionist $100 within the same class.
  • The "Uniformity" Rule: Benefits must be uniform for everyone in the class.

HSA Protection Protocol

  • The Risk: As discussed in Module 4, an ICHRA can accidentally "disqualify" an HSA if it pays first-dollar medical claims.
  • The Protocol: The TPA system enforces the plan design. If an employee is marked as "HSA Eligible," the system automatically rejects any claim for copays until the deductible is met.

Module 7 Summary

1. Daily Guardrails: The TPA handles Substantiation (receipt checking) and Monthly Attestation (coverage checks). If an employee stops paying premiums, the TPA suspends the account.

2. Quarterly Check: Ensure the TPA is filing Section 111 (MMSEA) reports to CMS for groups with 20+ employees.

3. January 31st (The Big Deadline): Payroll must handle W-2 reporting. For ALEs (50+), the TPA generates Form 1095-C with specific codes (1L, 1M, 1N) to prove Affordability

4. July 31st (Fees & Filings): The Employer files Form 720 to pay the PCORI Fee (~$3-$4/life). Large plans (100+) file Form 5500 (simplified via the Wrap Document).

5. Terminations & COBRA:

  • The Rule: Employees keep the policy (Portability) but lose the allowance (COBRA).
  • The Offer: You must send a COBRA Election Notice within 14 days.
  • The Fee: The standard charge is usually Allowance + 2%.

6. Testing: The software enforces Non-Discrimination Testing (NDT) to prevent favoring the C-Suite and HSA Protection to prevent accidental tax disqualification.

Module 7 References

  • Internal Revenue Service. (n.d.). 26 CFR § 54.9802-4 - Special rules for individual coverage health reimbursement arrangements (ICHRAs). Legal Information Institute. [https://www.law.cornell.edu/cfr/text/26/54.9802-4](https://www.law.cornell.edu/cfr/text/26/54.9802-4)
  • Internal Revenue Service. (n.d.). Instructions for Forms 1094-C and 1095-C. IRS.gov. [https://www.irs.gov/pub/irs-pdf/i109495c.pdf](https://www.irs.gov/pub/irs-pdf/i109495c.pdf)
  • Internal Revenue Service. (n.d.). Patient-Centered Outcomes Research Trust Fund Fee (PCORI). IRS.gov. [https://www.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee](https://www.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee)
  • Internal Revenue Service. (n.d.). Internal Revenue Code § 105(h) - Amount paid to highly compensated individuals. Legal Information Institute. [https://www.law.cornell.edu/uscode/text/26/105](https://www.law.cornell.edu/uscode/text/26/105)
  • Internal Revenue Service. (2002). Health Reimbursement Arrangements (COBRA Guidance). (Notice 2002-45). IRS.gov. [https://www.irs.gov/pub/irs-drop/n-02-45.pdf](https://www.irs.gov/pub/irs-drop/n-02-45.pdf)
  • Internal Revenue Service. (2020, June 8). Additional Guidance Under Section 4376 (PCORI Fee). (Notice 2020-44). IRS.gov. [https://www.irs.gov/pub/irs-drop/n-20-44.pdf](https://www.irs.gov/pub/irs-drop/n-20-44.pdf)
  • Internal Revenue Service. (n.d.). Internal Revenue Code § 105(h) - Amount paid to highly compensated individuals. Legal Information Institute. [https://www.law.cornell.edu/uscode/text/26/105](https://www.law.cornell.edu/uscode/text/26/105)
  • Internal Revenue Service. (n.d.). Instructions for Form 720, Quarterly Federal Excise Tax Return. IRS.gov. [https://www.irs.gov/pub/irs-pdf/i720.pdf](https://www.irs.gov/pub/irs-pdf/i720.pdf)
  • U.S. Department of Labor. (n.d.). Form 5500 Series & EFAST2. DOL.gov. [https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500](https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500)
  • Centers for Medicare & Medicaid Services. (n.d.). Model Notices and Disclosure Requirements. CMS.gov. [https://www.cms.gov/medicare/employers-plan-sponsors/creditable-coverage/model-notice-letters](https://www.cms.gov/medicare/employers-plan-sponsors/creditable-coverage/model-notice-letters)
  • U.S. Department of Labor. (n.d.). Compliance Assistance: COBRA. DOL.gov. [https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra](https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra)
  • Centers for Medicare & Medicaid Services. (n.d.). Mandatory Insurer Reporting for Group Health Plans (GHP). CMS.gov. [https://www.cms.gov/medicare/coordination-benefits-recovery-overview/mandatory-insurer-reporting-group-health-plans](https://www.cms.gov/medicare/coordination-benefits-recovery-overview/mandatory-insurer-reporting-group-health-plans)