Health Reform WK-EDGE Possible safe harbors for employers offering individual coverage HRAs
Friday, November 30, 2018

Possible safe harbors for employers offering individual coverage HRAs

By Lauren Bikoff, M.L.S.

In Notice 2018-88, the IRS is seeking comments on how to integrate individual coverage health reimbursement arrangements (HRAs) with (1) the applicable large employer’s shared responsibility payment rules, and (2) with the employer self-insured plan nondiscrimination rules. The IRS is considering several potential safe harbors to make it easier for employers to adopt individual coverage HRAs, as outlined in the October 23, 2018, proposed regulations (Notice 2018-89, I.R.B. 2018-49, November 19, 2018).

Proposed rules. Under the proposed regulations, employers would be able to integrate HRAs with individual health insurance coverage when certain conditions are met. HRAs would be permitted to reimburse employees for the cost of health insurance coverage; employees would own the coverage. The proposed rules would generally be effective on or after January 1, 2020, or for plan years starting on or after January 1, 2020.

Affordability safe harbors for applicable large employers. In the Notice, the IRS outlines several strategies under consideration as potential safe harbors for identifying the plan to be used to determine affordability, such as:

  • Location safe harbor. An applicable large employer would be able to use as the affordability plan for an employee 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. Under this safe harbor, the employer would determine the affordability plan for each employee based on the employee’s worksite location, rather than the employee’s place of residence.
  • Calendar year safe harbor. Because the cost of the HRA affordability plan that will apply for a calendar year will not be available until mid-to-late fall of the prior calendar year, employers would be able to determine affordability based on the cost of the applicable affordability plan for the prior calendar year.
  • Non-calendar year safe harbor. For plans that span two years, an applicable large employer that offers an individual coverage HRA would be able to assume that the cost of the affordability plan for the first month of the plan year would be the cost of the affordability plan for all the months in the plan year.
  • Current affordability safe harbors. The three current affordability safe harbors would be available for applicable large employers offering individual coverage HRAs. These include the Form W–2 wages safe harbor, the rate of pay safe harbor, and the federal poverty line safe harbor.

Nondiscrimination for self-insured reimbursement plans offering individual coverage HRAs. The IRS anticipates that future guidance will provide that a covered HRA will not be treated as discriminatory even if the maximum dollar amount made available to employees who are members of a particular class of increases in accordance with the increases in the price of an individual health insurance coverage policy in the relevant individual insurance market based on the ages of the employees. This safe harbor would be available only if the same maximum dollar amount attributable to the increase in age is made available to all employees who are members of that class of employees who are the same age.

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