The IRS released Notice 2018-88
providing related proposed guidance to the proposed regulations
issued in October 2018 allowing health reimbursement arrangements (HRAs) to be integrated with individual health insurance coverage if specific conditions are satisfied. The proposed regulations were proposed to apply for plan years beginning on or after Jan. 1, 2020.
The IRS explains that the proposed regulations raise issues under the Tax Code, in particular concerning the application of Section 4980H (the employer-shared responsibility provisions) and Section 105(h) (addressing discriminatory self-insured group health plans). The notice is intended to initiate and inform the process of developing guidance that addresses these issues, and requests comments on potential approaches developed by the IRS.
The notice clarifies how Sections 4980H(a) and 4980H(b) (including the current affordability safe harbors) would apply to an applicable large employer (ALE) that offers an integrated HRA. The IRS also proposes various affordability safe harbors that ALEs may elect to ease administrative burdens:
- A safe harbor where an ALE may use as the affordability plan for an employee the Affordable Care Act’s (ACA) lowest-cost Silver plan for the employee for self-only coverage offered by an ACA public exchange in the rating area in which the employee’s primary site of employment is located
- A safe harbor where an ALE may determine the affordability of an offer of an integrated HRA with a calendar-year plan year based on the cost of the applicable affordability plan for the prior calendar year
- A safe harbor where an ALE that offers an integrated HRA may assume that the cost of the affordability plan for the first month of the plan year will be the cost of the affordability plan for all months in the plan year
The IRS also addresses premium tax credit (PTC) eligibility for individuals offered coverage under an integrated HRA. Among other requirements, employees are ineligible for the PTC if they have an offer of coverage under an eligible employer-sponsored plan that is affordable and provides minimum value. The determination for whether an offer of an integrated HRA would be considered affordable and provide minimum value would be based on the application of the proposed PTC regulations described in Notice 2018-88.
The notice also addresses the application of Section 105(h) to the proposed HRA integration regulations and describes potential safe harbors. HRAs that reimburse employees only for premiums paid to purchase health insurance policies (including individual health insurance policies) are not subject to Section 105(h) or the underlying regulations. However, the notice includes proposed guidance on certain integrated HRAs offered to highly compensated individuals that would be subject to Section 105(h).
Comments regarding the notice and any other tax issues relating to integrated HRAs are due by Dec. 28, 2018. Taxpayers may not rely on Notice 2018-88 for guidance on Sections 4980H or 105(h).
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