Officials at the Internal Revenue Service are thinking about how employers can give employees cash that the employees can use to buy their own individual health coverage.
The IRS officials are preparing to implement draft regulations that could make cash-for-coverage arrangements available to employers of all sizes. Employers could provide the cash for coverage through health reimbursement arrangements (HRAs) .
IRS officials have put out a call for ideas about how to handle cash-for-coverage HRA compliance details in a new public notice, IRS Notice 2018-88.
In theory, the notice, and the underlying regulations, could create a new, employer-paid market for individual major medical coverage.
What’s in IRS Notice 2018-88?
The drafters of the underlying regulation want to make sure that the cash-for-coverage HRAs would be nondiscriminatory, and that the employees would end up with individual major medical coverage.
In the new notice, IRS officials ask for comments about how they could verify what’s happening, and create “safe harbors” that would let employers know what kinds of arrangements were appropriate.
Officials note, for example, that employers would have to show that an individual coverage HRA was affordable for the employees. Officials say the IRS and its parent, the U.S. Treasury Department worry that requiring employers to document affordability one employee at a time would be too difficult and too expensive.
“This, in turn, could undermine the goal of expanding the use of HRAs,” officials write.
Officials say they expect to issue safe harbor guidance on affordability. A large employer that’s required to provide affordable coverage could base affordability calculations on whether an employee could afford self-only coverage from the lowest-cost silver-level plan available through the ACA public exchange that serves the employee’s primary site of employment, rather than the employee’s place of residence.
Knowing an employee’s site of employment might be much easier for an employer than knowing the employee’s place of residence, officials say.
Officials say they are interested in hearing suggestions about how they could create a safe harbor for including an employee’s age in the affordability calculations. They are also interested in hearing ideas about how to handle cash-for-coverage HRAs with plan years that start on dates other than Jan. 1.
Responses to the new IRS notice are due Dec. 28.