On October 23, 2018, the Department of Labor (DOL), Treasury Department, and Department of Health and Human Services (HHS) jointly released proposed regulations which will expand the use of health reimbursement arrangements (HRAs) by employers. The regulations are a result of Executive Order 13813, which instructed the agencies to consider proposing rules to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage.
The proposed regulations allow HRAs to be integrated with certain types of individual health insurance coverage, provided that specific conditions are met. The proposed regulations also set forth conditions under which certain HRAs would be recognized as limited excepted benefits. Specifically, employers who offer group health insurance would be able to offer HRAs of up to $1,800.00 to reimburse certain excepted benefits, such as standalone dental benefits and premiums for a short-term health insurance plan. If the conditions are met, the employer could provide the HRA to the employee even if the employee does not enroll in the employer-sponsored group coverage.
The agencies are also proposing the following:
• Treasury and the IRS are proposing rules regarding premium tax credit eligibility for individuals offered coverage under health reimbursement arrangements integrated with individual health insurance coverage.
• The DOL is proposing a clarification to provide plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by a HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan.
• HHS is proposing rules that would provide a special enrollment period in the individual market for individuals who gain access to a HRAs integrated with individual health insurance coverage or who are provided a QSEHRA.
Interaction with ACA Employer Shared Responsibility
The departments anticipate that many of the employees interested in offering an HRA that integrates with an individual health plan would be smaller employers who are not subject to the employer shared responsibility penalties under Section 4980H(a) or 4980H(b). If the employer is an applicable large employer (ALE) they may be subject to an employer shared responsibility penalty (ESRP) if they fail to offer eligible employer-sponsored coverage or coverage that is affordable, should one or more full-time employees receives a premium tax credit (PTC) for any month. Whether a full-time employee who is offered an HRA would be eligible for a PTC will depend on the proposed rules under Section 36B of the IRC.
The proposed HRA integration rule suggests that the IRS will provide safe harbor guidance for determining whether an employer who has offered an HRA integrated with individual health insurance coverage, would be treated as having made an affordable offer of coverage that provides minimum value (mv) under ACA 4980H, regardless of whether the employee who received the offer declines the HRA and claims the PTC.
If finalized, the rules would not become effective until plan years beginning on or after January 1, 2020. The proposed rules state that taxpayers cannot rely on the proposed rules prior to their finalization. Therefore, employers should not take actions in reliance on these proposed rules until final rules are published. Paylocity will continue to monitor the proposed rules as they progress through the rulemaking process.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.