Guidance on how certain Employer HRA Contributions, Flex Credits, or Opt-Out Payments affect ACA Affordability

Health Reimbursement Account (HRA): An IRS approved, employer-funded, tax-advantaged employer health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums. There are two types of HRA’s that directly affect Affordability.

Integrated HRA’s: These are attached to an employer’s medical plan, hence integrated. An Integrated HRA complies with ACA regulations because it complies with the annual dollar limitations and preventive service requirements, or minimum value. Minimum Value is defined as the following; a plan with a premium for self-coverage that does not exceed the 9.5% of household income, and the plan also shares 60% of the cost.

Non Integrated HRA’s: These used to purchase individual policies. When an HRA is used to purchase individual policies, the HRA cannot be integrated into the policy. Therefore an HRA used to purchase coverage on the individual market will violate the ACA market reform provisions. The result is that a stand-alone HRA into which the employer deposits pre-tax dollars for the purpose of helping an active employee purchase an individual health insurance policy (i.e., a “defined contribution” approach) is not permitted.

Flex Credit: An employer contribution into a cafeteria plan that the employee can use towards benefits. Under the Treasury Department guidance, when a flex credit contribution may be used to purchase non-medical care benefits, such as money allocated towards a day care account or for the purchase of disability or life insurance, the flex credit does not factor into the calculation of medical plan affordability.

Opt-Out Payments: A health insurance opt-out is an incentive program an employer can offer—under a cafeteria plan— to provide cash, extra benefits or additional credits in return for an employee’s decision to reduce the level of benefits selected under benefit options or to “opt out” of a benefit altogether. However, at least for 2015 (and until regulations are issued), opt-out payment arrangements do not have to be considered when calculating affordability for purposes of Employer Reporting or for “Pay or Play,” unless the arrangement was adopted after December 16, 2015, and is not conditioned on meeting factors other than waiving coverage.

Other related ACA changes for 2016 that effect Affordability

Adjusted Penalty Amounts: The new guidance confirms that for calendar year 2015, the adjusted $2,000 penalty amount (for employers not offering coverage) is $2,080 and the adjusted $3,000 penalty amount (for employers offering coverage that is not affordable or does not provide minimum value) is $3,120. For calendar year 2016, the adjusted $2,000 penalty amount is $2,160, and the adjusted $3,000 penalty amount is $3,240. The Treasury and IRS anticipate that adjustments for future years will be posted on the website.