The IRS has issued Notice 2015-87, which provides further guidance on health reimbursement arrangements (“HRAs”) and the application of other provisions of the Affordable Care Act (“ACA”). The Notice clarified that an employer may not reimburse an employee who buys an individual health insurance plan (on the open market or from the ACA Exchange) for his or her premiums, unless the individual health insurance plan covers only excepted benefits (i.e., dental, vision, accident-only, etc.). Importantly, the terms of the HRA must explicitly state that the HRA may only be used to reimburse premiums for individual market coverage that covers only excepted benefits. Without the terms of the HRA explicitly limiting reimbursement to excepted benefits coverage, the HRA will be subject to the annual dollar limit prohibition and the preventative services requirement.

If an employee elects self-only coverage under his or her employer’s health insurance, the HRA may not reimburse medical expenses for family members who are not also enrolled in the employer’s health insurance. According to the Notice, federal agencies have provided a grace period until January 1, 2017 for HRAs that are not integrated with employee-only coverage. It is noteworthy that the Notice was silent as to HRAs used to reimburse expenses for family members who are enrolled in another group health plan (i.e., a spouse’s employer’s group health plan). Because the IRS has previously established that an HRA may be integrated with another group health plan, it is likely that after January 1, 2017, an HRA can continue to reimburse expenses of family members who are enrolled in another group health plan. Although, be aware that additional reporting requirements under the ACA may apply.

The Notice also confirmed that HRAs covering fewer than two participants who are current employees are not subject to the ACA’s market reforms. This means that an HRA covering only retirees may be used to purchase individual market coverage.

Keep in mind the following additional pieces of information as we enter into a new year:

  • If an employer offers health insurance and an employee declines it, getting coverage from his or her spouse’s employer’s group health plan (or his or her private employer’s group health plan), the employer may reimburse the employee for that premium expense. The employer’s reimbursement arrangement in this situation is considered an “employer payment plan” under federal law and must be “integrated” with the other group health plan (offered by the spouse’s employer or the individual’s private employer).
  • In order for an employer’s reimbursement arrangement to be “integrated” with another group health plan, five requirements must be met:
    • The employer offers ACA-compliant group health insurance that does not consist of only excepted benefits
    • The employee is actually enrolled in another group health plan that is ACA-complaint (i.e., the spouse’s employer’s plan or the individual’s private employer’s plan that is ACA-complaint)
    • The reimbursement arrangement is available only to employees who are enrolled in a group health plan.
    • The reimbursements are to be used only for copayments, deductibles and premiums for the other group health plan.
    • The reimbursement arrangement permits the employee to permanently opt out or waive future reimbursements, at least annually and upon termination.
  • After January 1, 2017, employers need to ensure their HRA is limited to reimbursement of expenses incurred by the employee and only those family members who are enrolled in the employer’s primary group health plan or, seemingly, that of the spouse’s or dependent’s employer, as discussed above. Failure to ensure integration of an HRA can result in an excise tax of $100 per day per affected individual.