EEOC Commission Opinion Letter: Individual Coverage Health Reimbursement Arrangements (ICHRA) under the ADEA (Jan. 7, 2021)
The EEOC has issued an opinion letter regarding whether an employer may sponsor an ICHRA that offers employees a defined contribution for the purchase of an age-rated individual major medical health insurance policy without violating the Age Discrimination in Employment Act (ADEA). The letter explains that for ADEA purposes, two distinct plans must be analyzed: the ICHRAs and the insurance policies purchased by employees using ICHRA funds. According to the letter, if the employer’s ICHRA contribution for each employee is the same, the ICHRA does not violate the ADEA prohibition against providing lesser compensation to older employees based on their age. And because ICHRAs are funded completely by the employer, they are not subject to the ADEA’s rules for contributory plans, which prohibit requiring older workers to bear a greater proportion of the cost of a fringe benefit than younger workers. The letter also explains that providing larger amounts to older workers based on their age does not violate the ADEA. Thus, employers may increase their contributions to older employees’ ICHRAs to offset age-based increases to their health plan costs without violating the ADEA. Observing that ICHRA regulations (see our Checkpoint article) do not permit employers to decrease the maximum available dollar amount as the participant’s age increases, the letter concludes that ICHRAs that comply with the regulations will not violate the ADEA’s prohibition against providing decreased compensation on the basis of age.
In addition, the letter states that insurance policies purchased by employees with ICHRA funds are not subject to the ADEA, which only applies to plans that are offered or provided by the employer. If the employer has no control over the policies and plays no role in making them available to employees, and they are purchased by employees from independent third parties with no employer involvement in their selection, the policies are not ADEA-covered employee benefit plans. Thus, there is no ADEA violation even though older employees may bear a greater proportion of the policies’ cost relative to the proportion that they would bear at a younger age, or relative to the proportion that younger ICHRA participants would bear.
EBIA Comment: This letter reminds us that compliance with the ADEA (and other laws under the EEOC’s jurisdiction) must be kept in mind when designing and administering employer-sponsored group health plans. Employers and their advisors should not forget that ICHRAs and other employer-sponsored group health plans are potentially subject to a variety of laws in addition to the Code, ERISA, and the PHSA. For more information, see EBIA’s Consumer-Drive Health Care manual at Sections XXV (“HRAs: COBRA, HIPAA, Health Care Reform, and Other Compliance Issues”) and XXVIII.B (“Individual Coverage HRAs (ICHRAs)”). See also EBIA’s Group Health Plan Mandates manual at Section XIX.C (“Analyzing Health Benefits Under the ADEA”).
Contributing Editors: EBIA Staff.