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IRS Seeks Ideas for Employer 'Cash for Coverage' Arrangements

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Part of the IRS headquarters building (Photo: Allison Bell/TA) (Photo: Allison Bell/TA)

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) .

(Related: Employers of All Sizes May Get to Offer Workers ‘Cash for Coverage’)

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.

More on this topic

The authors of the notice list Ronald Rutherford-Triche of the IRS Office of Associate Chief Counsel as the principal author, and Christopher Dellana and Kevin Knopf as other contact people.

The History

Before the main individual major medical insurance sections in the Affordable Care Act package took effect, in January 2014, some employers used cafeteria plans or other mechanisms to give workers cash the workers could use to buy their own health coverage.

After the ACA group health rules took effect, the administration of former President Barack Obama tried to block cash-for-coverage arrangements, because of concerns that workers might end up with bad coverage, and concerns that the arrangements might destabilize the small-group health insurance market.

(Related: Labor Rejects Cash-for-Coverage Strategies)

Congress made a cash-for-coverage HRA program — the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) program — available to small employers through a provision in the 21st Century Cures Act of 2016.

In October, the IRS teamed up with the Employee Benefits Security Administration and the Centers for Medicare and Medicaid Services to post draft regulations that could let employers provide cash for coverage through HRAs.

The cash-for-coverage HRA proposal is one of the results of a health insurance cost-reduction executive order that the administration of President Donald Trump released in October 2017. The other two components of the executive order were a call to ease Obama-era restrictions on the sale of short-term medical insurance and a call to make it easier for employers to join together to offer association health plans (AHPs). The administration has already implemented the short-term medical insurance and AHP provisions in the executive order.


A copy of Notice 2018-88 is available here.

Comments on the  underlying draft regulations are due Dec. 28.

Members of the public can comment both on the draft regulations and the new IRS notice by visiting the federal government’s website.

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