The Internal Revenue Services (IRS) released proposed guidance on the minimum value and affordability rules under the Patient Protection and Affordable Care Act (PPACA), including how health reimbursement arrangements (HRAs) will be used in determining minimum value and affordability.
These rules provide guidance for employers (with 50+ employees) on whether their employer-sponsored health coverage provides minimum value and is affordable, for the purposes of the employer "play or pay" penalties.
Employers with 50+ employees, 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 PPACA concepts to be familiar with before understanding the proposed rules on minimum value and affordability:
Integrated HRA: An integrated HRA is a Health Reimbursement Arrangement (HRA) that is offered along side an employer-sponsored group health plan (usually a high-deductible plan). The HRA is used to reimburse employees for their deductible expenses and can also reimburse premium expenses (though, this is less common). The HRA is 100% employer-funded.
Applicable Large Employer: PPACA defines an applicable large employer as 50+ full time equivalent (FTE) employees. Applicable large employers must either offer coverage that is affordable and meets minimum value, or else pay a tax penalty.
Minimum Value (MV): According to PPACA, 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 an actuarial value (AV) of 60%.
Affordability: PPACA considers coverage affordable if an employee’s required premium contribution (for self-only coverage only) does not exceed 9.5% of household income.
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 proposed regulations, 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.
HRAs - Minimum Value and Affordability Chart
Here's a chart on calculating Minimum Value and Affordability with integrated HRAs:
Note: The amounts to include in calculations are HRA funds made newly available for the current plan year.
What questions do you have about HRAs and minimum value and affordability calculations? Leave a comment below and we'll help answer.