January 3, 2018
Recently, we have received a number of questions about an employer’s responsibility to comply with the Affordable Care Act’s (ACA) reporting requirements with respect to post-employment or retiree health reimbursement arrangement (HRAs) and other types of account-based health plans (collectively referred to herein as post-employment HRAs) used to provide health benefits to former employees. As a result, we are providing a refresher regarding these requirements so employers can prepare to comply with them to the extent they are applicable to an arrangement the employer offers to its employees and retirees.
Because post-employment HRAs technically provide minimum essential coverage (MEC), reporting under Section 6055 of the Internal Revenue Code generally applies.[1] This reporting requirement is typically satisfied by completing and filing Forms 1094/1095-B.[2] The “plan sponsor” of the coverage must file the applicable form with respect to the self-insured MEC coverage it provides to its former employees. [A post-employment HRA constitutes self-insured MEC.] In addition, notices must be provided to those former employees and other persons actually receiving the coverage.
Note: In most cases, the employer is the plan sponsor of the post-employment HRA. This is true even when the post-employment HRA has multiple employers participating in it. The instructions indicate the “plan sponsor” of a plan or arrangement established or maintained by more than one employer is each participating employer (for its own covered individuals).
Limited Exception – Duplicative Reporting Rules. If the former employee (and covered family members) are also covered under other MEC (e.g., group health coverage) sponsored by the same employer, the employer may not need to report the coverage received under the post-employment HRA. Instructions for Forms 1094-B and 1095-B (https://www.irs.gov/pub/irs-pdf/i109495b.pdf) describe two exceptions that apply when an individual is covered by multiple plans providing MEC:
- When an individual is covered by two self-insured health plans (each of which provides MEC) of the same plan sponsor, reporting is required with respect to only one plan. As an illustration of the exception, the instructions provide that “if an individual is covered by a self-insured major medical plan and a health reimbursement arrangement (HRA) provided by the same employer, the employer is the provider of both types of coverage and therefore is required to report the coverage of the individual under only one of the arrangements.” In light of this exception, no reporting would be required with respect to post-employment HRA coverage if the individuals covered under the post-employment HRA are also covered under the employer’s self-insured medical plan (i.e., as a retiree or other continuation participant).
- Another exception applies only if the post-employment HRA is offered solely to former employees who remain enrolled in the employer’s medical plan. When an individual is covered under a plan providing MEC and that plan is offered only to individuals who are also covered by another health plan (providing MEC) for which reporting is required, reporting for the first plan is not required. As an illustration of this exception, the instructions state “if an employer offers both an insured group health plan and an HRA that an employee is eligible for if the employee enrolls in the insured group health plan, and an employee enrolls in both, the employer is not required to report the employee’s coverage under the HRA for the months in which the employee is enrolled in both plans. If, however, an individual is covered by an HRA sponsored by one employer and a non-HRA group health plan sponsored by another employer (such as spousal coverage), each employer (or the health insurance issuer or carrier, if the plan is insured) must report the coverage the employer (or issuer or carrier) provides.”
There is one other situation in which there may be an exception for post-employment HRAs. Guidance from the IRS, available at https://www.irs.gov/Affordable-Care-Act/Questions-and-Answers-on-Information-Reporting-by-Health-Coverage-Providers-Section-6055, indicates (at Q/A-14) that no reporting is required for coverage that “supplements government-sponsored coverage such as Medicare.” The guidance does not indicate what it means by “supplements.” If the exception is available to any MEC that is secondary to an individual’s Medicare coverage, then the exception would apply with respect to participants of a post-retirement HRA who are enrolled in Medicare in many cases. [However, a post-employment HRA that covers a former employee who has Medicare coverage due to end-stage renal disease may provide primary coverage to Medicare depending on when the HRA participant became eligible for Medicare.] If, however, the term “supplements” means the coverage is intended to specifically coordinate with primary Medicare coverage (i.e., cover the portion of a medical expense that is not paid by Medicare), then the exception likely would not apply to a post-employment HRA. In light of this uncertainty regarding what coverage “supplements” Medicare, we recommend completing the reporting for post-employment HRA participants who are enrolled in Medicare until this exception is further clarified.
To Do Items:
- Determine whether your former employees are entitled to benefits under a post-employment HRA (including other account-based health plans that reimburses medical expenses).
- Identify the sponsor of that plan.
- If you are the sponsor of the plan, gather the information necessary to prepare and file the required Forms, including the names and Social Security Numbers of the former employees with access to their account under the plan and the other individuals covered through that former employee (e.g., spouse, dependent child) under the plan.
Caution: According to the IRS, if a post-employment HRA reimburses the medical expenses incurred by the participant’s spouse and dependents, the spouse and dependents are considered to be covered by the plan. As a result, the Form 1095-B should including information regarding covered spouses and dependents (including their Social Security Numbers). See IRS Notice 2015-87, Q/A-4.
- Determine which former employees (and other individuals) are covered by the special rules related to duplicative reporting described above and document these determinations for your file. No additional reporting is required with respect to coverage under the post-employment HRA for the employees to which any of the exceptions apply.
- For all former employees with access to the post-employment HRA that are not excluded under #4, prepare and file the required forms with the IRS and provide notification to the former employees by the applicable deadlines.
Please contact us if you have any questions.
[1] An exception applies if the arrangement is an excepted benefit under HIPAA. For example, post-employment HRAs that reimburse only expenses for dental care, vision care, and other excepted benefits are themselves an excepted benefit and are not considered MEC. Similarly, post-employment HRAs that qualify as HIPAA-excepted flexible spending arrangements also are not considered MEC.
[2] If the employer is required to file a Form 1095-C for the former employee covered under the post-employment HRA (e.g., due to the fact the former employee was employed during part of the year), the coverage under the post-employment HRA must be reported in Part III of the Form 1095-C.