New proposed regulations from the IRS are designed to clarify the nondiscrimination rules pertaining to Individual Coverage Health Reimbursement Arrangements (ICHRAs). Affordable Care Act (ACA) employer shared responsibility provisions apply to all Applicable Large Employers (ALEs), which are generally employers who have an average of 50 or more full-time employees during the preceding calendar year. The new proposed regulations apply to ALEs that provide ICHRAs as part of their employee benefit plan.
HRAs allow employees to save for medical expenses and reimburse certain expenses from a tax-advantaged savings account. Starting January 1, 2020 employers will be able to provide employees with ICHRAs that can be used to then purchase individual health insurance coverage as well as reimburse healthcare expenses.
IRS Proposed Regulations Regarding ICHRAs
The new proposed regulations are designed to clarify that when an ALE offers an employee the opportunity to participate in an ICHRA, this opportunity will be treated the same as an offer of minimum essential coverage and satisfies the employer’s requirement to provide such coverage and thus avoid penalties. Pursuant to the ACA, an ALE is liable for penalties if it does not offer 95% of its full-time employees and their dependents the opportunity to enroll in qualifying coverage such as an employer-sponsored health plan or an ICHRA. These penalties apply if at least one full-time employee is eligible for and receives a premium tax credit. Qualifying HRAs must be considered affordable and provide minimum value to the plan participant.
Is the Offered Coverage Affordable?
Current regulations provide three safe harbors for ALEs to determine if offered coverage is affordable. Proposed new regulations add two new safe harbors specific for the ICHRAs. These are a location-based safe harbor and a look-back month safe harbor. Both safe harbors base ICHRA affordability on the lowest-cost silver plan for self-only coverage that is offered through the insurance exchange in the state where the employee resides.
The location-based safe harbor looks at the location of the employee’s primary employment. This could be an office location or a work-from-home site where the employee reports to work to provide his or her services. If the employee changes location, then the new site of employment must be used starting on the second month after the employee moves. The look-back month safe harbor uses the premium for the lowest-cost silver plan for January of the prior calendar year.
These proposed regulations allow ALEs to modify the amounts available to employees based on local conditions without violating nondiscrimination requirements.