The Equal Employment Opportunity Commission (EEOC) released an opinion letter clarifying what is permitted for employer funding of an individual coverage HRA (ICHRA) under the Age Discrimination in Employment Act (Act).
Under the ADEA, it is “unlawful for an employer … [to] discriminate against any individual [at least 40 years of age] with respect to his [or her] compensation, terms, conditions, or privileges of employment, because of such individual’s age.” Generally, an older employee cannot be required, as a condition of employment, to make greater contributions than younger employees toward an employee benefit plan. However, older employees may be required to make a greater contribution than younger employees if they are not required to contribute a greater proportion of the total premium costs. Therefore, when there are age-rated premiums for a small group health plan, the required employee contribution may increase with age so long as all employees are required to contribute the same percentage toward the cost of coverage. Alternatively, the employer could develop composite rates, allowing the employer to charge all employees the same amount.
With these rules in mind, there was confusion as to how an employer could fund an ICHRA integrated with individual health coverage (subject to age-rating) without violating the ADEA. For example, is it okay for an to employer to offer the same amount to all who elect to participate in the ICHRA with no differentiation for older employees subject to higher individual health coverage premiums?
The EEOC guidance addressed two specific scenarios and indicates both are permitted under the ADEA: (i) an ICHRA offering where the employer makes the same monthly dollar amount available to all ICHRA participants; and (ii) an ICHRA offering where the employer increases the monthly dollar amount by employee age (with older employees receiving more).
The first scenario is okay because the employer is making the same amount available to all participants regardless of age. The second scenario is okay as well, whether the amount made available by the employer reflects a percentage of the individual’s health insurance premium or simply increases with an employee’s age, because older employees receive a larger monthly amount.
You can find the EEOC’s opinion letter here: https://www.eeoc.gov/commission-opinion-letter-individual-coverage-health-reimbursement-arrangements-ichra-under-adea?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=