On December 16, 2015, the Internal Revenue Service issued Notice 2015-87 containing guidance on a wide-range of topics under the Affordable Care Act (ACA). The Notice reaffirms existing guidance on a Health Reimbursement Arrangement’s (HRA) inability to reimburse premiums paid for individual health insurance premiums unless an exception applies. Among other items, the Notice also discusses Health Flexible Spending Account (FSA) carryovers as they relate to the Consolidated Omnibus Budget Reconciliation Act (COBRA). Below are some highlights. HRAs It is restated in the Notice that HRAs limited to retirees are the only HRAs that may reimburse individual health insurance premiums (including Medicare supplement plans). The reasoning for the exception is that the Internal Revenue Code and ERISA contain a “retiree-only exception” stating that plans that cover less than two active employees are excepted plans not required to comply with ACA market reforms. Unless the retiree-only exception applies, amounts in an HRA cannot be used to reimburse premiums paid for individual health coverage—including those offered in the Marketplace under the ACA. Another change to have an impact on participants and employers alike is that an HRA that reimburses medical expenses for an employee, their spouse, and dependents cannot be coupled with or “integrated” with self-only group health plan coverage. This means the spouse and dependents must also be covered under the employer’s plan for their expenses to remain HRA eligible. The IRS will not enforce this requirement until 2017 and transition rules are expected. Also, for now it is assumed that integration with another group health plan (when the spouse and dependents have group health coverage from another employer) remains allowable as discussed in IRS Notice 2013-54. Health FSA Carryover and COBRA The Notice clarifies that health FSAs aren’t required to offer COBRA coverage unless the qualified beneficiary’s account is underspent when the qualifying event occurs. This means that the amount available for reimbursement for the remainder of the plan year should be more than the COBRA premiums for that timeframe. As the landscape for the ACA and new laws affecting health and welfare plans changes, please contact your Nyhart consultant with questions.
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