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IRS Issues Final Regulations on Employer ACA Requirements

Tuesday December 9th, 2014

Estimated time to read: 2 minutes

Not to be outdone by Centers for Medicare and Medicaid Services (CMS) and Health and Human Service (HHS), the IRS also released guidance over the Thanksgiving weekend.  Final rules for minimum essential coverage and other employer shared responsibility requirements joined the Federal Register family on November 26, 2014.

These final regulations provide that, for purposes of determining the affordability of coverage (9.5% of income/household within the exchange and employee's income within the employer’s plan), the required contribution is reduced by any contributions made by an employer under a Section 125 cafeteria plan that 1. may not be taken as a taxable benefit, 2. may be used to pay for minimum essential coverage, and 3. may be used only to pay for medical care within the meaning of Section 213 (such contributions are referred to in the regulations as health flex contributions).

Also, the final regulations didn’t adopt the suggestion to include all benefits provided under a cafeteria plan in the taxpayer’s household income. So, the final regulations cross-referenced Notice 2013-54 and clarify that amounts newly made available under a Health Reimbursement Arrangement (HRA) count toward an employee’s required contribution if the HRA would have been integrated with an eligible employer-sponsored plan if the employee had enrolled in the primary plan Notice 2013-54 indicated.  The final regulations also provide that, for purposes of determining an individual’s required contribution, an HRA is taken into account only if the HRA and the primary eligible employer-sponsored coverage are offered by the same employer.  This means that an HRA could not be integrated with a plan offered by another employer for purposes of determining affordability and minimum value.

The final regulations clarify that, in general, HRA contributions count toward affordability, and not minimum value, if an employee may use the HRA contributions to pay premiums for the primary plan only, or to pay cost-sharing or benefits not covered by the primary plan in addition to premiums. Under the Section 36B proposed regulations:

  • HRA amounts that may be used only for cost-sharing are counted for purposes of minimum value and not for affordability.
  • HRA contributions that can be used only to pay for cost-sharing do not count toward affordability.
  • HRA contributions that can be used for premiums and cost sharing will only count for affordability and there will be no double counting of these contributions.

In regards to wellness plans, the final regulations retain the rules in the proposed regulations that wellness incentives unrelated to tobacco use are treated as unearned (and do not calculate into the affordability/9.5%).  Wellness incentives related to tobacco use are treated as earned (and can therefore be used in the affordability/9.5%) in determining affordability.

This little tidbit might be beneficial when you’re looking at which wellness programs the agencies are referring to.  The final regulations clarify that the term wellness program incentives has the same meaning as the term reward in the tri-agency regulations. Thus, programs that provide a discount or rebate, programs that impose a surcharge, and participatory and health-contingent wellness programs are wellness program incentives under the final regulations.

The other pieces included in these final regulations include defining what health care coverage might not be considered minimum essential coverage in a government sponsored program, how an individual might claim a hardship exemption and how the employer shared responsibility payment will be calculated.  Please read the brief seven pages to see full guidance.