The IRS has issued Notice 2018-88 to provide guidance on its proposed Health Reimbursement Account (“HRA”) regulations and their application to two Internal Revenue Code requirements: the Affordable Care Act (“ACA”) employer mandate penalties (i.e., Code Section 4980H) and the nondiscrimination rules for self-funded group health plans (i.e., Code Section 105(h)).
Background. IRS, DOL and HHS have issued proposed regulations (see the Alert of 10/30/18) that would end the prohibition against the integration of HRAs with individual health insurance coverage, (i.e., individual coverage HRAs). The proposed regulations would also allow employers offering traditional group health plans to provide “excepted benefit” HRAs to reimburse employees for certain medical expenses.
ACA Employer Mandate. The Notice provides the following guidance on how the ACA’s employer mandate applies to an applicable large employer (“ALE”) that offers an individual coverage HRA:
- An individual coverage HRA is an “eligible employer-sponsored plan” for purposes of Code Section 4980H. Accordingly, an ALE’s individual coverage HRA is taken into account in determining whether the ALE offers coverage to at least 95 percent of its full-time employees.
- To avoid penalties under Code Section 4980H(b), an ALE’s offer of coverage must be “affordable” and provide “minimum value.” The determination of whether an individual coverage HRA is affordable will be based on how much the employee needs to contribute for self-only coverage in the lowest-cost silver-level plan available to the employee after taking into account the amount made available through the HRA.
- The Notice presents several new safe harbors intended to simplify the process for ALEs to determine affordability for purposes of 4980H(b).
- An individual coverage HRA that is affordable would be treated as providing minimum value for purposes of 4980H(b).
Nondiscrimination Rules. Code Section 105(h) generally prohibits self-funded health plans from offering a benefit to its highly compensated employees that it does not also offer to its non-highly compensated employees. The proposed HRA regulations allow ALEs to limit offers of individual coverage HRAs to members of certain classes of employees (specified within the proposed HRA regulations) and to vary the amounts, terms and conditions of individual coverage HRAs among the different classes of employees.
The Notice explains that future guidance is expected to provide that an individual coverage HRA will not be viewed as discriminatory when the maximum annual amount made available to members of the same class of employees increases with age due to similar increases in the individual health insurance marketplace.
Notice 2018-88 is available by clicking here.