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IRS Addresses ACA Rules for Employer-Provided Health Coverage

With Notice 2015-87, issued December 16, 2015, the IRS clarifies how certain provisions under the Affordable Care Act (ACA) apply to employer-provided health coverage. The guidance generally applies for plan years beginning on or after December 16, 2015.

The notice’s key provisions include the following:

  • Clarification on how the employee contribution for coverage is calculated. The IRS has provided information on how the cost is affected by HRA and flex contributions, opt-out payments and Service Contract Act/Davis-Bacon Act fringe benefits.
  • Confirmation of adjusted employer shared responsibility penalty amounts. For 2015, the adjusted penalty amounts are $2,080 and $3,120. For 2016, the adjusted penalty amounts are $2,160 and $3,240.
  • Application of the adjusted affordability percentage to the affordability safe harbors under the employer shared responsibility rules. The adjusted amounts are 9.56 percent for 2015 and 9.66 percent for 2016.

ACA Market Reform Rules Guidance

The ACA includes certain market reforms that apply to group health plans and health insurance issuers in the group and individual markets. Notice 2015-87 supplements previous guidance addressing Health Reimbursement Arrangements (HRAs) and employer payment plans (group health plans under which an employer pays for an employee’s individual health insurance premiums). Here are some examples of what is included:

  • An HRA covering retirees or other former employees (rather than current employees) is not subject to the ACA’s market reforms.
  • A current-employee HRA that allows employees to purchase individual market coverage will violate the ACA’s market reforms. However, using certain previously credited amounts to reimburse medical expenses will not violate the market reforms.
  • A family HRA cannot be integrated with self-only coverage under the employer’s group health plan to comply with the market reforms (transition relief is available for plan years beginning before January 1, 2016).

Affordability and Other Aspects of Employer Shared Responsibility Rules

Under the ACA’s employer shared responsibility rules, employer-sponsored coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of his or her household income (as adjusted). The IRS has provided three optional safe harbors for employers to use in determining whether coverage is affordable: the Form W-2 safe harbor, the rate of pay safe harbor and the federal poverty level safe harbor. Notice 2015-87 clarifies certain issues related to calculating the employee’s cost of coverage, such as:

  • Employer contributions to an HRA, and flex credit contributions to a Section 125 cafeteria plan
  • Opt-out payments
  • Employer fringe benefit payments under the Service Contract Act (SCA) and the Davis-Bacon Act (DBA) that may be used to pay for coverage under an eligible employer-sponsored plan

Notice 2015-87 also addresses other aspects of the employer shared responsibility rules and related Section 6056 reporting requirements. Guidance is given for hours of service (what is included and whether hours must be credited), extension of the 26-week break-in-service rules for educational organizations, employee status of AmeriCorps Members and the treatment of TRICARE coverage offers.

For more in-depth information, read our full Healthcare Reform Legislative Brief or contact your Hylant representative.