The Internal Revenue Service (IRS) released proposed guidance on the minimum value and affordability rules under the Patient Protection and Affordable Care Act (ACA), including how health reimbursement arrangements (HRAs) will be used in determining minimum value and affordability.
Employers with 50 or more FTEs that also offer an integrated HRA should use these guidelines for calculating if their health coverage meets minimum value and affordability.
Introduction to integrated HRAs, minimum value, and affordability
Here are four important ACA concepts to be familiar with before understanding the proposed rules on minimum value and affordability:
Integrated HRA: An integrated HRA, also known as a group coverage HRA, is a health reimbursement arrangement (HRA) that employers offer alongside an employer-sponsored group health plan (usually a high-deductible plan). Employers use a GCHRA to reimburse employees for their out-of-pocket deductible expenses. The GCHRA is 100% employer-funded.
Applicable large employer (ALE): The ACA defines an applicable large employer as an organization with 50 or more FTEs. ALEs must either offer coverage that's affordable and meets minimum value or pay a tax penalty.
Minimum value (MV): According to the ACA, a plan provides MV if the plan's share of the total allowed cost of benefits provided under the plan is at least 60%. In other words, it has anactuarial value (AV) of 60%.
Affordability: The ACA considers coverage affordable if an employee’s required premium contribution (for self-only coverage only) does not exceed 8.39% of household income for 2024 1. This is down from 9.5% in 2023.
Integrated HRAs and minimum value
The proposed rules address how employer contributions toward an integrated HRA will count toward the plan's minimum value and affordability. First, let's take a look at minimum value.
For minimum value determination:
All HRA amounts that are made newly available under an integrated HRA for the current plan year are taken into account for MV purposes (assuming that the amounts may only be used for cost-sharing and not to pay insurance premiums).
Integrated HRAs and affordability
According to the regulations 2, integrated HRAs can also count toward affordability. IRS says that for the purposes of determining affordability, HRA amounts that are made newly available under an integrated HRA for the current plan year, are taken into account in determining affordability only if the employee may either:
Use the HRA amounts only for premiums.
Choose to use the HRA amounts for either premiums or cost-sharing.