A wrinkly screenshot of part of the ICHRA regs

Big employers that use the new individual coverage health reimbursement arrangement (HRA) programs to replace traditional group health plans for permanent, full-time workers will have to make sure the employees can afford Affordable Care Act exchange plan, according to health care and labor lawyers at Foley Hoag LLP.

The lawyers — Thomas Barker, Christopher Feudo and Ross Margulies — talk about the individual coverage HRA funding issue in an alert analyzing the new individual coverage HRA regulations.

The Internal Revenue Service, the U.S. Department of Labor's Employee Benefits Security Administration, and the U.S. Department of Health and Human Services published the final regulations in June.

Compliance specialists are still finding new wrinkles in the new regulations.

One is that employers big enough to be subject to the ACA “shared responsibility” rules, or employer coverage mandate rules, may have a harder time whether they have successfully avoided having to pay the ACA mandate penalties.

Normally, the lawyers write, an employee who was offered an individual coverage HRA would not be able to use an ACA exchange plan premium tax credit subsidy, and would not be able to lead to the IRS imposing employer coverage mandate penalties.

“If an individual is offered the HRA option, but declines it, the individual may be able to qualify for the credit if the HRA, when combined with individual market coverage, is unaffordable,' the Foley Hoag lawyers write.

If full-time, permanent workers who decline individual coverage HRAs end up qualifying for the ACA exchange plan premium tax credit, the employer could end up facing employer mandate penalty bills.

The Foley Hoag lawyers note that how all of this will really work is unclear.

“The Treasury Department and the IRS are planning to propose new rules on this topic,” the lawyers write.

Another Wrinkle

Edward Fensholt of Lockton Companies wrote in a client alert that another challenge is that individual coverage tends to be more expensive than group coverage.

“In a tight labor market, employers using health insurance as an attraction and retention tool would have to increase HRA contributions, year over year, in amounts that would likely far and away exceed the increases they'd pay for equivalent coverage on a group basis,” Fensholt wrote.

Individual Coverage HRA Basics

An employer could provide an unlimited amount of cash through an individual coverage HRA, as long as the employee used the cash to provide individual coverage or other coverage compatible with Affordable Care Act (ACA) coverage rules.

An employer could also contribute up to $1,800 per year that an employee could use for buying “excepted benefits,” such as dental insurance and hospital indemnity insurance.

Regulation impact analysts at the U.S. Labor Department have estimated the regulations could eventually lead to 800,000 employers replacing their group health plans with individual coverage HRA programs.

The Appeal

William Sweetnam Jr., legislative and technical director at the Employers Council on Flexible Compensation, said in written comments sent to ThinkAdvisor, that the individual coverage HRA program could have some appeal for employers that are not big enough to be subject to the ACA employer mandate, or that want to provide health coverage for employees not affected by the mandate, such as part-time, temporary or seasonal workers.

He said some employers could see adding an individual coverage HRA program as a good way to top off traditional group health coverage.. “An employer may be concerned that its employees are struggling with deductible and co-pays for the health insurance that they have under the health insurance they have, and they may want to offer a small amount of assistance to them through an HRA,” Sweetnam said.

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