The IRS has issued Notice 2015-87, which provides guidance on a myriad of Affordable Care Act (“ACA”) market reforms, including ACA compliance issues raised by health reimbursement arrangements (“HRAs”).
Background. ACA generally prohibits group health plans from imposing annual or lifetime dollar limits on “essential health benefits.” The IRS has previously indicated that arrangements whereby employers reimburse employees for medically-related costs are group health plans subject to the ACA’s market reforms. Accordingly, all such reimbursement arrangements must satisfy ACA market reforms.
HRAs are group health plans that typically reimburse medical expenses up to a specified dollar amount. Thus, HRAs cannot satisfy certain ACA market reforms, including the required coverage of preventive services and the prohibition on annual or lifetime dollar limits.
Prior IRS guidance has explained that in order to comply with ACA’s market reforms, an HRA must be “integrated” with a group health plan that is ACA-compliant. While IRS rules allow an HRA to be integrated with a group health plan not sponsored by the employer sponsoring the HRA, IRS has confirmed that, in general, an HRA cannot be integrated with an individual market plan.
Notice 2015-87. Notice 2015-87 covers the following ACA compliance issues presented by HRAs:
- HRAs that cover only former employees or retirees need not be integrated with a group health.
- A former employee covered by an HRA is ineligible for premium tax credits as long as funds remain available in the HRA.
- Retiree-only HRAs may reimburse individual market insurance premiums and other medical-related costs.
- Unless the retiree-only exception applies, unused amounts in an HRA cannot be used to reimburse premiums paid by former employees for individual market coverage, even if the amounts were originally earned when the HRA was properly integrated with a group health plan.
- Amounts credited to an HRA before 2014 may be used to reimburse medical expenses pursuant to the terms in effect before 2014 without violating ACA market reforms.
- An HRA that reimburses medical expenses for an employee and the employee’s spouse and dependents cannot be integrated with self-only group health plan coverage but must be integrated with coverage in which the spouse and dependents are enrolled to comply with ACA requirements. (Note: IRS will not enforce this rule until 2017.)
- An HRA that reimburses an employee for premiums paid for individual market coverage will not violate ACA market reforms if such coverage only provides excepted benefits.
- An employer payment plan or an HRA that is part of an Internal Revenue Code Section 125 cafeteria plan must be integrated with a group health plan in order to be ACA-compliant.
- An HRA must be properly documented and be in operational compliance with ACA market reforms.
Takeaway for Employers. As a result of the documentary compliance requirement for HRAs provided in Notice 2015-87, employers must now carefully review their HRA documentation to ensure that it satisfies the ACA’s market reforms. Employers that are considering sponsoring HRAs should proceed with caution and consult with qualified benefits advisors.
Notice 2015-87 is available at: https://www.irs.gov/pub/irs-drop/n-15-87.pdf
Extension of Due Dates for 2015 Information Reporting under ACA
The IRS has extended the due dates (1) for furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and (2) for filing with IRS: Form 1094-B, Transmittal of Health Coverage Information Returns; the 2015 Form 1095-B, Health Coverage; the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns; and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically. The IRS also provided guidance to individuals who do not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns.
Additional information concerning the extensions is available at: https://www.irs.gov/pub/irs-drop/n-16-4.pdf