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Proposed rules could deliver HRA tax savings to millions

IRS • June 17, 2020 at 8:05 AM • Written by: Josh Miner

A newly proposed regulation, Certain Medical Care Arrangements, could greatly expand the value and reach of Health Reimbursement Arrangements (HRAs) by letting employers use pretax dollars to reimburse employees for direct primary care arrangements, membership costs for health care sharing ministries, and costs for several government-sponsored programs.

These proposed changes, if finalized, will remove a huge obstacle to accelerate HRA adoption toward the government's expectation that 800,000 employers will offer HRAs to 11 million eligible employees once the rules are understood.

Expanding HRAs to cover health care sharing ministry membership costs and more

The proposed rules provide analysis and clarification that would dramatically expand the kinds of expenses that are deductible. Memberships of health care sharing ministries would become deductible, potentially reducing the tax burden of medical expenses for over a million people. In addition, costs for a number of government-sponsored programs, including Medicare C and D, CHIP, TRICARE, and certain veterans’ health care programs would also become tax deductible. As with direct primary care arrangements, all of these payments could be reimbursed by a health reimbursement arrangement, which an employer (or health care sharing ministry) provides. The proposed regulations specifically note that health care sharing ministries are not eligible for HSAs.

HRAs and direct primary care arrangements

Direct primary care arrangements are defined as an agreement between an individual and one or more primary care physicians under which the physician or physicians agree to provide medical care for a fixed annual or periodic fee without billing a third party (such as an insurance provider). A “primary care physician” is a physician who specializes in family medicine, internal medicine, geriatric medicine, or pediatric medicine.

The proposed changes add payments for direct primary care arrangements as a qualified expense under IRS Code 213 and deductible under Sec. 213(a). These medical expenses would also become reimbursable through a health reimbursement arrangement (HRA) an employer provides.

The proposed regulations are careful to specify that individuals covered by a direct primary care arrangement are generally not eligible to contribute to a health savings account (HSA), with limited exceptions.


The proposed regulations will dramatically expand the type of expenses that people can deduct (the expansion for health care sharing ministries alone could provide additional tax relief for up to 1 million people). This proposal makes it clear that the government is determined to reduce the burden of medical costs of Americans through tax-advantaged HRAs.

The IRS is requesting comments for this rule until 08/10/2020. We invite those affected by these proposed changes to contribute your comments so the IRS understands their importance and to ensure the rules meet your needs. We are watching the progress of this issue closely and are developing solutions that will make our award-winning HRA solutions readily available once the rule is in effect.

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