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Application of Employer Shared Responsibility and Nondiscrimination Rules to ICHRAs Clarified in Proposed Regulations



Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account-Based Group Health Plans Integrated With Individual Health Insurance Coverage or Medicare, 84 Fed. Reg. 51471 (Sept. 30, 2019)

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The IRS has issued proposed regulations that clarify how the Code’s employer shared responsibility and self-insured health plan nondiscrimination rules apply to HRAs that are integrated with individual health insurance coverage (ICHRAs). ICHRAs are permitted beginning in 2020 under regulations expanding the use of HRAs (see our Checkpoint article). Those regulations, along with IRS Notice 2018-88 (see our Checkpoint article), indicated that the IRS would be issuing additional guidance on these topics. The proposed regulations clarify and refine the concepts discussed in Notice 2018-88. Here are highlights:

  • Employer Shared Responsibility. The proposed regulations provide safe harbors that would simplify affordability determinations for applicable large employers (ALEs). As background, an ICHRA is considered affordable if an employee’s “required HRA contribution” does not exceed a specified percentage of the employee’s household income. The required HRA contribution generally is the excess of the premium for self-only coverage under the lowest-cost silver plan offered in the rating area where the employee resides, over the self-only amount the employer makes newly available to the employee under the ICHRA. To determine the applicable lowest-cost premium, one safe harbor would allow ALEs to use a look-back month before the plan year, and another would allow ALEs to use employees’ primary worksite rather than their residence. CMS has released a tool to help employers find the lowest-cost silver plan for the applicable location in states using the federal Exchange platform. The existing general affordability safe harbors (W-2, rate of pay, and federal poverty line) would also apply to ICHRAs. ALEs electing to use the safe harbors must do so on a uniform and consistent basis for all employees in a class. An affordable ICHRA is treated as providing minimum value under Code § 4980H. The preamble confirms that, by merely offering an ICHRA, an ALE offers an eligible employer-sponsored plan that is taken into account in determining whether the ALE offered coverage to enough full-time employees (and dependents) to avoid a Code § 4980H(a) penalty. Future guidance will be provided on information reporting for ICHRAs, which will not be required until early 2021.
  • Nondiscrimination (Code § 105(h)). Two nondiscrimination safe harbors are proposed. First, the maximum amount available under an ICHRA may vary within a class of employees or between classes without violating the uniform employer contribution requirement if (a) within each class, the maximum dollar amount only varies in accordance with the “same terms” requirement under the ICHRA rules, and (b) with respect to differences in the maximum dollar amount for different classes, each class is set forth in the ICHRA rules. Second, an ICHRA that satisfies the age-variation exception under the ICHRA rules will not fail to meet the nondiscriminatory benefit requirement solely due to the age-based variation. The preamble cautions that ICHRAs must also be nondiscriminatory in operation and may fail to meet this requirement if, for example, a disproportionate number of highly compensated individuals qualify for and utilize the maximum amount allowed based on age. It also confirms that an ICHRA that only reimburses insurance premiums is treated as an insured plan and is not subject to the Code § 105(h) rules (although health care reform’s nondiscrimination rules for insured plans may apply, compliance with those rules is not currently required—see our Checkpoint article).
  • Reliance. Taxpayers generally may rely on the proposed regulations for plan years beginning before the date that is six months after final regulations are published.

EBIA Comment: Employers interested in adopting ICHRAs and their advisors will want to familiarize themselves with the proposed regulations. Comments are due by December 29, 2019, and have been requested on various topics, including issues raised when employers allow ICHRA participants to pay the portion of their premiums not covered by the ICHRA with cafeteria plan salary reductions. For more information, see EBIA’s Consumer-Driven Health Care manual at Sections XXIII (“HRAs: Nondiscrimination”) and XXVIII.B (“Individual Coverage HRAs (ICHRAs)”). See also EBIA’s Health Care Reform manual at Section XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”). You may also be interested in our webinar “HRAs in 2020: A Brave New World for Defined Contribution Health Care(recorded on 8/21/19).


Contributing Editors: Thanks to attorney John R. Hickman for his contributions to this article, with final editing by EBIA staff. Mr. Hickman is a partner in the Employee Benefits Practice Group with Alston & Bird in Atlanta,, and is a contributing author of EBIA’s Consumer-Driven Health Care, Cafeteria Plans, and Health Care Reform manuals and a contributor to EBIA’s HIPAA manual.

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