The IRS issued proposed regulations (REG-136401-18
) on the application of the Section 4980H employer shared-responsibility provisions and Section 105(h) nondiscrimination rules to individual coverage health reimbursement arrangements (HRAs).
The guidance details how Sections 4980H(a) and 4980H(b) (including the current affordability safe harbors) would apply to an applicable large employer (ALE) that offers an individual coverage HRA. The IRS proposes various affordability safe harbors to ease administrative burdens. Under the safe harbors, an ALE may:
- Use as an employee affordability plan the lowest-cost silver plan for the employee for self-only coverage offered by the exchange in the rating area in which the employee’s primary site of employment is located
- Determine the affordability of an offer of an individual coverage HRA with a calendar-year plan year based on the cost of the applicable affordability plan for the prior calendar year
- 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 the employer shared-responsibility implications for employers that offer individual coverage HRAs to their employees. In general, an employer that offers an individual coverage HRA would not be liable for any employer-shared responsibility payment with respect to any full-time employee if it satisfies one or more of the above safe harbors, even if an employee receives or is allowed a premium tax credit (PTC). To the extent not addressed by the safe harbor, the rules under the proposed PTC regulations would apply in determining whether an offer of an individual coverage HRA would be considered affordable and provide minimum value.
The proposed regulations also address the application of Section 105(h) to individual coverage HRAs and describe potential safe harbors. HRAs that reimburse employees only for premiums paid to purchase health insurance policies (including individual health insurance policies) are generally not subject to Section 105(h) or the underlying regulations. However, the IRS noted that certain individual coverage HRAs offered to highly compensated individuals may still be subject to Section 105(h).
The proposed regulations under Section 4980H are proposed to apply for periods beginning after Dec. 31, 2019, and the proposed regulations under Section 105(h) are proposed to apply for plan years beginning after Dec. 31, 2019. Taxpayers may rely on the Section 4980H proposed regulations for periods during any plan year of individual coverage HRAs beginning before the date that is six months following the publication of any final regulations, and taxpayers may rely on the Section 105(h) proposed regulations for plan years of individual coverage HRAs beginning before the date that is six months following the publication of any final regulations.
These proposed regulations supplement final regulations that were issued in June 2019 that allow employers to begin offering individual coverage HRAs on and after Jan. 1, 2020, and prescribe additional requirements that must be met to do so.
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