In proposed rules issued Jan. 27, the IRS clarifies how participants in employer-sponsored plans are to count employer contributions to HRAs and wellness program incentives when calculating their contributions to employer-sponsored coverage.
In those rules, the IRS also allows temporary exceptions to health care reform’s definition of minimum essential coverage for government-sponsored limited-benefit plans, giving individuals with such coverage a reprieve from fines for inadequate coverage.
HRA Contributions and Wellness Incentives
If employee contributions to HRA amounts are used to pay premiums, then they would be counted as part of the employee’s required contribution, when determining whether or not coverage is unaffordable. If HRA funds are used not for premiums but to pay cost-sharing amounts, such as copays and deductibles, then those contributions could not be counted. Of course, the HRA must be offered in conjunction with a major medical health plan in order to impact this determination, as May 3, 2013 proposed rules have stipulated.
Also, wellness incentives (that is, reductions in employee premium contributions) from employer-sponsored plans would be treated as earned in determining an employee’s contribution to the extent the incentives relate to tobacco use. Wellness program incentives not relating to tobacco use would not allowed to modify the employee’s premium contribution for this purpose, under the proposal.
IRS Loosens Minimum Essential Coverage Definition
Minimum essential coverage does not include coverage providing only limited benefits, such as coverage consisting solely of excepted benefits. Examples of such benefits offered by employers most often include: (1) stand-alone vision care or dental care; (2) workers’ compensation; and (3) accident or disability policies.
Aug. 30, 2013 final rules describes how individuals can be exonerated from penalties if they fail to have what is considered as MEC coverage.
Under the new proposal, individuals who have non-MEC coverage under certain government-sponsored programs would enjoy temporary relief from health care reform penalties for months in 2014 when they have that coverage. These include Medicaid programs for: (1) family planning coverage; (2) tuberculosis-related services; (3) pregnancy-related services; (4) medically needy individuals; and (5) emergency medical conditions.
Also, certain government-authorized demonstration projects; limited-benefit TRICARE coverage of “space-available care;” and limited-benefit TRICARE coverage of line-of-duty care would be treated as MEC for the transitional period. For more information on this aspect of the rule, see IRS Notice 2014-10.
More information is available in this series of questions and answers.
Statutory exceptions to the individual mandate include: incarceration; unaffordable coverage of more than 8 percent of income; income so low one need not file a tax return; coverage gaps of less than three months; hardship in acquiringcoverage; being part of a health-sharing ministry; religious objections to having coverage; and others.
Regarding the hardship exception, the proposal suggests that instead of having to apply to a state-based health insurance exchange to get certified for that exception, individuals could get one by attesting need on their federal income tax return for 2014.
The public has three months, or until April 28, to comment on the proposed rule. The individual mandate took effect on Jan. 1, 2014.