Category Archives: Health Reimbursement Arrangements

Qualified Small Employer HRAs Face Steep Compliance Path

Co-authored by
Christine P. Roberts, Mullen & Henzell L.L.P and
Amy Evans of Colibri Insurance Services, Inc.

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Passed in December 2016, the 21st Century Cures Act backtracked in part on an abiding ACA principle – namely, that employers could not reimburse employees for their individual health insurance premiums through a “standalone” health reimbursement account (HRA) or employer payment plan (EPP).  Specifically, the Cures Act carves “Qualified Small Employer Health Reimbursement Arrangements” or QSE HRAs — out from the ACA definition of group health plan subject to coverage mandates, permitting their adoption by eligible small employers, subject to a number of conditions.  The provisions are effective for plan years beginning after December 31, 2016.

The compliance path for QSE HRAs is steep enough that they may not be adopted by a significant number of eligible employers. Below we list the top five compliance hurdles that small employers will face:

1.   Requirement that no group health plan be maintained.

In order to be eligible to maintain a QSE HRA an employer must not have more than 50 full-time employees, including full-time equivalents (measured over the preceding calendar year), and in addition it must not maintain any group health plan for employees.  Small businesses are more likely than not to offer some health coverage to employees, although eligibility may be limited as in a “management carve-out” arrangement.  Business owners may be reluctant to part with group coverage, such that QSE HRAs may have most appeal to small employers that never offered coverage at all.

2.  Confusion over impact on premium tax credits.

A significant amount of confusion exists as to whether QSE HRA benefits impact an employee’s eligibility for premium tax credits on a health exchange.  The confusion is natural as the applicable rules are quite confusing.  Fundamentally, if a QSE HRA benefit constitutes “affordable” coverage to an employee (which requires a fairly complicated calculation), then the employee will be disqualified from receiving premium tax credits.  If a QSE HRA is not affordable (that calculation again), then the QSE HRA benefit will reduce, dollar for dollar, the premium tax credit amount for which the employee qualified.  We have only statutory text at this point and regulations will no doubt provide more clarity, but small employers may still struggle to understand the interplay of these rules and may be even less equipped to assist employees with related questions.

3.  Annual notice requirement.

A small employer maintaining a QSE HRA must provide a written notice to each eligible employee 90 days before the beginning of the year that:

  • Sets forth the amount of permitted benefit, not to exceed annual dollar limits that are adjusted for inflation (currently $4,950 for individual and $10,000 for family coverage);
  • Instructs the employee to disclose the amount of their QSE HRA benefit when applying for premium tax credits on a health insurance exchange; and
  • Reminds the employee that, if he or she is not covered under minimum essential coverage (MEC) for any month a federal tax penalty may apply, and in addition contributions under the QSE HRA may be included in their taxable income. (The QSE HRA is not itself MEC.)

If compliance with the annual notice requirements under SEP and SIMPLE plans is any guide, small employers may find it difficult to consistently provide the required written notice. The Cures Act imposes a $50 per employee, per incident penalty for notice failures, up to $2,500 per person.  Penalty relief is available if the failure is demonstrated to have been due to reasonable cause and not willful neglect.

4.  Annual tax reporting duties.

Small employers must report the QSE HRA benefit amount on employees’ Forms W-2 as non-taxable income.   ACA tax reporting for providers of “minimum essential coverage” (MEC), namely, providing Form 1095-B to each eligible employee and transmitting  copies of all employee statements to the IRS under transmittal Form 1094-B  –would not appear to be required for sponsors of QSE HRAs, as MEC reporting will be done by the individual insurance carriers.  Clarity on this point would be welcome.

5.  Lack of financial incentive for benefit advisers.

Small employers will (reasonably) look to health insurance brokers for guidance and clarification on these complex issues. They will also need assistance with QSEHRA set-up, including shopping TPAs to compare services and fees, educating employees on enrollment and use, handling service issues during the year, and satisfying the annual notice requirement and annual tax reporting duties. Unfortunately, the benefit broker and adviser community has little financial incentive to recommend QSEHRAs, because commissions are based on a relatively low annual administrative fee and do not provide reasonable compensation for this work.  This in turn could result in low uptake by small employers.

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Filed under Affordable Care Act, Benefit Plan Design, Health Reimbursement Accounts, Health Reimbursement Arrangements, Plan Reporting and Disclosure Duties, PPACA, Premium Tax Credits, Qualified Small Employer HRAs

IRS Proposes Revisions to ACA Reporting for Health Reimbursement Arrangements

As addressed in our prior post, IRS Notice 2015-68, issued on September 17, 2015, describes and requests comments on a number of ACA reporting issues, including several that that the IRS and Treasury Department plan to address in amended or new proposed regulations. Among the points addressed is avoiding duplicate reporting for multiple sources of MEC provided to the same individual (“supplemental coverage”). The Notice describes the current rule for reporting supplemental coverage as “confusing” and outlines a more streamlined alternative. Examples in the Notice describe how it will apply to Health Reimbursement Arrangements (“HRAs”) that are offered together with group health coverage.  Note:  MEC reporting generally is not required for HRAs, but per recent informal comments by the IRS on a payroll industry conference call, applicable large employers (ALEs) may have to report on HRA coverage that constitutes MEC via Part III of IRS Form 1095-C, under some circumstances.

The proposed new anti-duplication rules, which will apply month-by-month and individual-by-individual, will provide that if an individual is covered by multiple MEC plans or programs provided by the same provider, reporting is required for only one of them. Under this proposed rule, if an individual is enrolled in a self-insured group health plan for a given month and also is takes part in an HRA sponsored by the same employer, the employer, again via Section III of Form 1095-C, is required to report only one type of coverage for that individual (which most likely would be the self-insured group health plan) for that month. If an employee is covered under both arrangements for some months of the year but is covered only under the HRA for other months (for instance, because he or she retires or otherwise drops coverage under the self-insured group health plan), the employer must report coverage under the HRA for those months when it was the only MEC provided.

Under the second proposed anti-duplication rule, reporting generally is not required for MEC for which an individual is eligible only if the individual is covered by other MEC for which MEC reporting is required, so long as the two types of coverage are sponsored by the same employer. This describes the typical “integrated” HRA setting, in which an employer offers an HRA only to employees and dependents who enroll in the employer’s group health plan.  In this setting, a self-insured employer can take advantage of the first anti-duplication rule, and need not report the HRA as MEC for months in which an employee is enrolled in both plans.  However, an employer that is an ALE and sponsors an insured plan may have a reporting duty.  An insured employer that is an ALE need not provide MEC reporting in relation to the HRA for those months in which the employees and dependents are enrolled in the insured plan. However, if an employee is enrolled in an employer’s HRA and in a spouse’s employer’s group health plan, the employee’s employer must provide MEC reporting for the HRA.  If the employee’s employer is an ALE the HRA reporting is done via Form 1095-C, Section III.  If the employee’s employer is not an ALE it is done by completing Forms 1095-B and 1094-B.  In other words, the duty to report MEC coverage provided to non-employees under an integrated HRA applies even to an employer that is not an “applicable large employer” and need not report offers of coverage on Forms 1095-C and 1094-C.

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Filed under Affordable Care Act, Health Care Reform, Health Reimbursement Arrangements, Minimum Essential Coverage Reporting, Plan Reporting and Disclosure Duties, PPACA, Self-Insured Group Health Plans