HRAs and Family Members: A New Wrinkle for Form 1095-C
For ACA reporting, are family members who participated in a health reimbursement arrangement “covered"?
Imagine that you are filling out Internal Revenue Service Form 1095-Cs for 2015 for an employer that offers employees the opportunity to elect self-only or family coverage under a minimum-value group health plan. The plan includes a health reimbursement arrangement (HRA) that the employee can use for co-payments and deductibles under the plan. You are about to fill out Part III for an employee who elected self-coverage, by listing only the employee as a covered person when a question occurs to you:
If the HRA can be used to pay for co-payments and deductibles incurred by the employee’s spouse and dependents, should the spouse and dependents be listed in Part III as covered individuals (even though they are “covered” only under the HRA)?
Fortunately, the IRS has anticipated your concerns and, in Notice 2015-87, provided the answer. Before turning to that answer, a refresher on HRA basics may be helpful.
HRAs Under the ACA
In recent years, HRA adoption and utilization has declined primarily because many HRAs that pre-dated the Affordable Care Act (ACA) would fail to satisfy two market reform requirements added by the ACA. The first is the ban on annual maximum benefits imposed on group health plans. Since the amount reimbursable under an HRA is limited to the account balance, the HRA effectively has an annual limit by its very nature. The second ACA hurdle is the requirement imposed on nongrandfathered plans to cover certain preventive care on a first dollar basis. HRAs typically do not cover preventive care on a first dollar basis.
HRAs have not disappeared, however. Prior IRS guidance carved out a limited exception under which an HRA will be deemed to satisfy the annual limit prohibition and the preventive care requirement. The essence of the exception is that the HRA must be “integrated” with another group health plan that does satisfy these requirements.
An HRA is integrated with a group health plan for purposes of meeting the ACA’s compliance requirements if it meets one of two “integration methods.” The first integration method requires that:
• The employer offers a group health plan other than the HRA to the employee (one that does not consist solely of excepted benefits).
• The employee receiving the HRA is actually enrolled in the group health plan.
• The HRA is available only to employees who are enrolled in the group coverage.
• The HRA is limited to reimbursement of one or more of the following: co-payments, coinsurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits.
• Under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and upon termination of employment.
Alternatively, an HRA that is not limited with respect to reimbursements under the first integration method is integrated with a group health plan if:
• The employer offers a group health plan to the employee that provides minimum value.
• The employee receiving the HRA is actually enrolled in the minimum-value group health plan.
• The HRA is available only to employees who are actually enrolled in the minimum-value group coverage.
• Under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and on termination of employment.
An Unwelcome Answer—But Also Relief
In Notice 2015-87, the IRS ruled that an HRA is not integrated with a non-HRA group health plan if the HRA covers family members who are themselves not covered under the group plan.
Employers with HRAs in place as of Dec. 16, 2015, when Notice 2015-87 was issued, have until the first day of their 2017 plan year to amend the HRA to exclude reimbursements for the expenses of family members not covered by the minimum-value group health plan. Owing to this transition relief, it was permissible in 2015 for an HRA to cover an employee’s spouse and dependents even if the employee elected self-only coverage for 2015.
Returning to our question in light of the IRS’s position: Should the employee’s spouse and dependents be listed in Part III on Form 1095-C as covered individuals because they were “covered” by the HRA, even though they were not covered by the main plan (the non-HRA portion of the plan)?
According to Notice 2015-87, the answer is yes: “[T]he employer will be responsible under section 6055 for reporting the coverage as minimum essential coverage for each individual the medical expenses for whom are reimbursable by the HRA who is not also enrolled in the employer’s group health plan.”
This is just another wrinkle to keep in mind as you prepare your Form 1095-C reporting for 2015.
Tom Christina is a shareholder in the Greenville, S.C. office of Ogleetree Deakins, where he counsels clients on benefit plan design, regulatory, operational, and compliance issues. This article is excerpted from an expanded analysis on the firm’s website. Hyperlinks have been added by SHRM Online. © 2016 Ogletree Deakins. Republished with permission. All rights reserved.
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