Following up on the issuance of final regulations on various market reform provisions under the Affordable Care Act (ACA), the IRS has issued a notice with Questions and Answers that take a more detailed look at specific ACA issues. In particular, this notice addresses:

  • Health reimbursement arrangements (HRAs). The guidance confirms that retiree-only HRAs may stand on their own, but reasserts the IRS's position that HRAs covering current employees must be integrated with another group health plan in accordance with rules previously published by the IRS. The notice proceeds to address certain nuances of the integration rule.

  • Affordability - contribution. The notice provides guidance on how to calculate the amount an employee is required to contribute toward the cost of coverage for purposes of determining whether that coverage is affordable under the employer mandate. To satisfy the affordability standard, the employee contribution must be less than 9.5 percent (indexed) of the employee's household income. The new guidance provides, for example, that an employee contribution may be reduced by a credit under a flexible benefit plan that cannot be paid as a taxable benefit, may be applied toward the purchase of minimum essential coverage, and may be used exclusively to pay for medical care. However, if the credit could be paid in cash or applied toward non-health benefits, like dependent care or group term life insurance, it would not reduce the employee's contribution. In implementing this guidance, certain transitional rules apply. For a limited period, employers may apply certain reductions and treat coverage as affordable, but employees may treat the reductions as not applying, which may allow workers to qualify for subsidized coverage they purchase through the Marketplace (a health insurance exchange). The notice encourages employers whose reports under the ACA reflect such a reduction to notify employees about how to contact the employer for information about the transitional rule and the amount of their contribution without a reduction.

  • Affordability – safe harbor. The affordability rules set forth several safe harbors to substitute for household income, which employers often will not know. The new guidance provides that the 9.5 percent threshold that applies for purposes of the affordability safe harbors will be indexed in the same manner as the 9.5 percent of household income standard under the general affordability rule.

  • Long-term disability. For purposes of determining whether an employee is full-time, the employer mandate requires employers to determine an employee's hours of service, which include hours for which an employee is entitled to pay, even if the employee is not working for certain reasons, including disability. The notice categorizes disability benefit recipients based on their employment status. If the recipient is still regarded as employed, the employer must continue to determine the recipient's hours of service, regardless of whether the benefits are insured or self-funded (and without regard to the 501-hour cap that applies under retirement plan rules). This requirement does not apply to terminated employees or those who receive benefits not based on employer contributions, as under an employee-pay-all plan.

  • Educational institutions. The IRS intends to amend existing regulations to provide that staffing agency employees who work primarily at educational institutions (and who do not have meaningful opportunities to work elsewhere—for example, during summer break—will be subject to the extended 26-week break-in-service period that applies to educational institutions for purposes of determining whether the individual may be treated as a new employee.

  • Government entities. Government employers may apply a reasonable, good faith interpretation of the controlled group rules for purposes of determining whether they should be treated as a single employer. For a single employer, the total number of full-time employees and full-time equivalents must be aggregated to determine if the employer mandate rules apply. If related government employers are subject to the employer mandate, the reports on the coverage they offer must be prepared for each separate common-law employer, with its own EIN.

  • COBRA and health FSAs. The guidance provides that carryovers from a health FSA, where applicable, will be included in COBRA continuation coverage on the same basis as carryovers are available to active employees. Certain limitations apply, and the COBRA premium is not to take carryover amounts into account.

  • Transition rules. Various transition rules are scattered throughout the notice, addressing interpretations of the rules that may not take effect immediately (see Affordability – contributions section above). One Q&A reaffirms and offers modest clarification of the IRS enforcement guidelines for 2015. The IRS will not assess penalties against employers for incorrect or incomplete reports under the new ACA rules (section 6056 of the Internal Revenue Code) as long as the employer provides the reports on time and otherwise makes a good faith effort to meet the requirements.

As the federal health care reform effort gained steam, Ballard Spahr attorneys established the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. They also have launched the Health Care Reform Dashboard, an online resource center for news and analysis on developments under the Affordable Care Act.

If you have questions about the new notice or related subjects, contact Edward I. Leeds, Christopher W. Welsch, or the Ballard attorney with whom you regularly work.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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