2016 Developments in HRA Administration: Reviewing Recent IRS Guidance

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Agenda
• IRS Notice 2013-54 & Technical Release 2013-03
• Retiree HRAs
• Domestic Partners
• Individual Mandate
• Transitional Relief
• ACA reporting
• Reimburse Coverage From a Spouse’s Employer on a Tax-Free Basis
• HRA integration

IRS Notice 2013-54 & Technical Release 2013-3

• The reimbursement of premiums is prohibited for individual medical policies from health
reimbursement arrangements.
• The reimbursement for other types of individual coverages is allowed.
• Guidance is provided for integrated HRAs.
• Rules are effective for plan years beginning in 2014.
Reimbursing Premiums for Individual Policies

• Arrangements that help employees to pay for individual health insurance policies on a tax-
free basis fail to satisfy the ACA’s annual dollar limit and preventive health services “market
reform” provisions.
• There are exemptions for certain plans.
Reimbursing Premiums for Individual Policies

• A employer payment plan will not meet these mandates unless it meets the rules pertaining
to participation in a group health plan.
• It is defined as any arrangement that facilitates the direct or indirect payment of individual
market coverage.
• It does not include any arrangement whereby employees may choose between cash or an
after-tax amount to be applied toward health coverage, including forwarding post-tax payroll
deduction to the insurer, as long as the arrangement satisfies the voluntary plan safe harbor
under the DOL regulations.
Employer Payment Plans

According to the IRS and DOL, any arrangement that provides for the purchase of individual
market coverage on a pre-tax basis will fail these market mandates.
Bottom-line

Exemptions
• Retiree plans
• Reimbursement of exempted benefits
• Voluntary benefits safe harbor

Free Standing HRAs
• Guidance requires that HRAs be integrated with group health plans for plan years beginning
in 2014.
• Rules vary depending on whether the group health plan is of minimum value.
• Free standing HRAs can still reimburse premiums and expenses for “excepted benefits.”

Integrated HRAs
• Must be integrated with group health plan of the employer of another employer.
• Two integration methods provided.
• First method is with a group health plan that does not provide minimum value.
• Second method is with group health plan that provides minimum value.

Integrated HRAs
A group plan that does not provide minimum value:
• Employee must be enrolled in group health plan.
• Reimbursements limited to copays, coinsurance deductibles premiums for group health plan
and non-essential health benefits.
• Must allow permanent opt out and waiver of future reimbursements annually.
• Upon termination, must require remaining amounts to be forfeited or permanently opt out
and waiver of future reimbursements.

Integrated HRAs
Group plan that does provide minimum value:
• Employee must be enrolled in group health plan.
• No restrictions on reimbursements.
• Must allow permanent opt out and waiver of future reimbursements annually.
• Upon termination, must require remaining amounts to be forfeited or permanently opt out
and waiver of future reimbursement.

Other Rules
• Unused amounts that were credited to an HRA while the HRA was integrated with other
group health plan coverage may be used to reimburse medical expenses in accordance
with the terms of the HRA even after the employee ceases to be covered by other integrated
group health plan coverage without causing the HRA to fail to comply with the market
reforms.
• The HRA coverage will be considered minimum essential coverage, which will prevent an
employee from obtaining a premium assistance tax credit for coverage purchased through
the Exchange.

Retiree HRAs
FAQs
• Retiree-only HRAs are exempt from making reinsurance contributions because CMS does
not consider plans with a dollar limit on benefits to be providing major medical coverage.
• Since HRAs reimburse medical expenses only until a participant’s account balance is
exhausted, they impose a dollar limit on benefits and, in CMS’s view, do not provide major
medical coverage that would require reinsurance contributions.

Domestic Partners
Private Letter Ruling 201415011
• The IRS ruled that the fair market value of HRA coverage provided to a participant’s non-
dependent domestic partner would be includible in the participant’s gross income and would
be wages for FICA, FUTA, and federal income tax withholding purposes.
• Any employee FICA or income tax withholding attributable to the coverage and paid from
the participant’s HRA account would also be includible in the participant’s gross income and
wages, and would have to be increased under the IRS “gross-up” rules that apply when
taxes are paid on an employee’s behalf.

Individual Mandate
Proposed Regulations
Amounts newly made available for the current plan year under an HRA will reduce an
employee’s required contributions if:
• the HRA would be “integrated,” as provided in IRS Notice 2013-54 , with a primary plan
sponsored by the same employer if the employee enrolled in that plan;
• the amounts can be used for premiums for the primary plan or for premiums plus cost-
sharing or benefits not covered under the primary plan; and
• the amounts are required under the plan’s terms or otherwise determinable within a
reasonable time before the employee must decide whether to enroll.

Transitional Relief
• The IRS released Notice 2015-17 which provides transition relief from the assessment of
excise tax under Code Section 4980D for failure to satisfy market reforms in certain
circumstances.
• The transition relief applies to employer healthcare arrangements that constitute:
 employer payment plans, as described in Notice 2013-54, if the plan is sponsored by an employer
that is not an Applicable Large Employer (ALE) under Code § 4980H(c)(2) and §§54.4980H-
1(a)(4) and -2;
 S corporation healthcare arrangements for 2-percent shareholder-employees;
 Medicare premium reimbursement arrangements; and
 TRICARE-related health reimbursement arrangements (HRAs).
Notice 2015-17

Transitional Relief
Notice 2015-17
• The IRS will not impose excise taxes otherwise assessable under Code § 4980H for
employer payment plans maintained in 2014 or the first six months of 2015 (i.e., through
June 30, 2015) for employers that are not “applicable large employers” (ALEs) for those
periods.
• Employers eligible for the relief are also excused from the requirement to self-report these
violations on Form 8928.
• The Notice relief does not apply to stand-alone HRAs or other arrangements to reimburse
any expenses other than insurance premiums.

Transitional Relief
Notice 2015-17
• The Notice also addresses “2% shareholder-employee healthcare arrangements,” under
which a Subchapter S corporation pays for or reimburses premiums for individual health
insurance coverage for a “2% shareholder” where the payment or reimbursement is
included in income and the premiums are deductible by the 2% shareholder-employee
under Code § 162(l).
• Pending the issuance of additional guidance on these arrangements, the Notice provides
that an S corporation will not be subject to Code § 4980D or required to file Form 8928
solely as a result of having a 2% shareholder-employee health care arrangement.

Transitional Relief
Notice 2015-17
The Notice permits an employer’s reimbursement of Medicare Part B or Part D
premiums to be integrated with another group health plan offered by the employer, but
only if:
• The employer offers a group health plan (other than the premium reimbursement
arrangement) to the employee that does not consist solely of excepted benefits and offers
coverage providing minimum value;
• The employee participating in the premium reimbursement is actually enrolled in Medicare
Parts A and B;
• Premium reimbursement is available only to employees who are enrolled in Medicare Part A
and Part B or Part D; and
• Reimbursement is limited to Medicare Part B or Part D premiums and premiums for
excepted benefits, including Medigap premiums.

Transitional Relief
Notice 2015-17
• The Notice confirms that an employer may increase an employee’s taxable compensation,
not conditioned on the purchase of health coverage, without creating an employer payment
plan (or any group health plan at all).
• The Notice reiterates the IRS’s position that an employer’s payment or reimbursement of
employees’ individual health insurance premiums is a group health plan subject to the
market reforms even if the payments or reimbursements are made on an after-tax basis.

ACA Reporting
• If an individual is covered by a self-insured major medical plan and a health reimbursement
arrangement (HRA) provided by the same employer, the employer is the provider of both
types of coverage and therefore is required to report the coverage of the individual under
only one of the arrangements.
• An employer with an insured major medical plan and HRA coverage for which an individual
is eligible because the individual enrolls in the insured major medical plan is not required to
report the coverage under the HRA for an individual covered by both arrangements.
• If an individual is covered by an HRA sponsored by one employer and a non-HRA group
health plan sponsored by another employer (such as spousal coverage), each employer
must report the coverage the employer provides.
Form 1095-B | HRA Coverage

ACA Reporting
Form 1095-C | HRA Coverage
• An ALE Member with a self-insured major medical plan and a health reimbursement
arrangement (HRA) is required to report the coverage of an individual enrolled in both types
of minimum essential coverage in Part III under only one of the arrangements.
• An ALE Member with an insured major medical plan and an HRA is not required to report in
Part III HRA coverage of an individual if the individual is eligible for the HRA because the
individual enrolled in the insured major medical plan.
• An ALE Member with an HRA must report coverage under the HRA in Part III for any
individual who is not enrolled in a major medical plan of the ALE Member (for example if the
individual is enrolled in a group health plan of another employer (such as spousal
coverage)).

Reimburse Coverage From
a Spouse’s Employer on a Tax-Free Basis

Reimburse Coverage From a Spouse’s Employer on a Tax-Free Basis
IRS Chief Counsel Advice 201547006
• Reimbursements can only be excluded from the employee’s income if the spouse has paid
for the reimbursed coverage on an after-tax basis and not with pre-tax salary reductions
under a cafeteria plan.
• The result is the same whether the reimbursement comes directly from the employer or from
an HRA.

HRA Integration
IRS Notice 2015-87
• HRAs available to cover medical expenses of an employee’s spouse or children (family
HRAs) may not be integrated with employee-only coverage but must be integrated with
coverage in which the dependents are enrolled to comply with ACA requirements.
• Recognizing that many employer plans do not conform to this requirement, the IRS is
allowing plans a grace period until end of the plan year beginning before January 1, 2017 to
come into compliance with this requirement.

Contact
Larry Grudzien
Attorney at Law
708-717-9638
larry@larrygrudzien.com
larrygrudzien.com

2016 Developments in HRA Administration: Reviewing Recent IRS Guidance

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