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Recently proposed IRS regulations provide guidance to employers who want to start offering individual coverage HRAs in place of offers of health coverage under the Affordable Care Act.
The IRS proposed regulations state that the offering of an individual coverage HRA can satisfy the ACA requirement that employers offer health insurance to their ACA full-time workforce as required by the ACA’s Employer Mandate. An individual coverage HRA is in compliance with general ACA requirements as long as it provides preferred funds to pay for the cost of health insurance coverage purchased through the individual health insurance marketplace.
This provides employers with an opportunity to offer individual coverage HRAs to employees instead of offers of health coverage.
As it relates to determining whether an individual coverage HRA is affordable under the ACA, the regulations state that “for purposes of section 4980H(b), an employer may use the lowest cost silver plan for the employee for self-only coverage offered through the Exchange where the employee’s primary site of employment is located for determining whether an offer of an individual HRA” is affordable.
The proposed regulations include several affordability scenarios, including the application of individual coverage HRAs and Medicare and self-funded HRA qualifications. In the proposed regulations, the affordability determination becomes even more important as it relates to HRA’s as the “regulations provide that an individual coverage HRA that is affordable is treated as providing [minimum value].”
If the IRS proposed regulations are approved, employers will have the option to offer either individual coverage HRAs to their employees or extend offers of health coverage in order to satisfy the ACA’s Employer Mandate. Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The new IRS regs, if adopted, could create another level of complexity in terms of ACA reporting requirements because of the requirement that employers confirm the communication of affordability and offer of coverage type to employees on the 1095-C forms. This additional layer of reporting could also impact ACA compliance for employers.
Earlier this year, the U.S. Department of Health and Human Services (HHS), U.S. Department of Labor (DOL) and the U.S. Department of Treasury issued a final rule expanding the use of HRAs to allow employers to use individual coverage HRAs to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that they purchase in the individual health insurance marketplace. The HRA expansion goes into effect for plans beginning January 2020.
HRAs had been offered to employees before the passage of the ACA, but their use was banned by the health care law.
It’s argued that the expansion of HRA use by employers would make the individual marketplace more competitive by giving employees an opportunity to purchase health care on their own, with the aid of funding from their employers in exchange for electing to opt out of company-sponsored health coverage.
The IRS is currently issuing Letter 226J penalty assessments to employers identified as having failed to comply with the ACA for the 2017 tax year. The agency is also issuing notices for failing to file Forms 1094-C and 1095-C to the agency for failing to furnish Forms 1095-C by the required deadlines.
