IRS Notice 2015-87 Provides Lots of Guidance on ACA Issues

29 December 2015

IRS Notice 2015-87 Provides Lots of Guidance on ACA Issues

The Treasury Department and the Internal Revenue Service (IRS) have issued Notice 2015-87, which provides guidance on the application of various provisions of the Affordable Care Act (ACA) to employer-provided health coverage. Among other things, the Notice provides the following:

  • A Health Reimbursement Arrangement (HRA) is permitted to be integrated with the employer’s other group health plan coverage for purposes of the application of the group market reforms only as to the individuals who are enrolled in both the HRA and the employer’s other group health plan.
  • HRAs can reimburse employees for individual dental and vision insurance policies.
  • Plans with flex credits that can only be used for medical, dental and vision expenses will count as employer contributions for purposes of determining affordability. Transition rules apply for plan years beginning before January 1, 2017.
  • For purposes of determining the affordability of an employer-sponsored plan, opt-out credits must be counted as an employee cost of coverage. Transition rules apply for coverage offered before December 16, 2015.
  • Until the applicability date of any further guidance, employer fringe benefit payments (including flex credits or flex contributions) under the Service Contract Act or the Davis-Bacon Act that are available to pay for coverage under an eligible employer-sponsored plan (even if alternatively available to the employee in other benefits or cash) will be treated as reducing the employee’s required contribution for participation in that eligible employer-sponsored plan, but only to the extent the amount of the payment does not exceed the amount required to satisfy the requirement to provide fringe benefit payments.
  • The safe harbors for determining affordability are indexed and are 9.56% for 2015 and 9.66% for 2016.
  • For calendar year 2015, the adjusted $2,000 penalty is $2,080 and the adjusted $3,000 penalty is $3,120. For calendar year 2016, the adjusted $2,000 penalty is $2,160 and the adjusted $3,000 penalty is $3,240.
  • An hour of service does not include any hours after the individual terminates employment with the employer. Accordingly, periods during which an individual is not performing services but is receiving payments due to short-term disability or long-term disability result in hours of service for any part of the period during which the recipient retains status as an employee of the employer, unless the payments are made from an arrangement to which the employer did not contribute directly or indirectly.
  • Treasury and IRS intend to propose amendments to the regulations to provide for application of a special rule in certain circumstances in which the services are being provided to one or more educational organizations, even if the employer is not an educational organization.
  • COBRA participants are entitled to carryover amounts under health flexible spending accounts (FSAs) and the applicable premium for the carryover amount is zero.
  • A health FSA is not required to allow a COBRA beneficiary to elect additional salary reduction amounts for the carryover period, or to have access to any employer contributions to the health FSA made during the carryover period. In addition, the carryover is limited to the applicable COBRA continuation period.
  • A health FSA may limit the availability of the carryover of unused amounts to individuals who have elected to participate in the health FSA in the next year, even if the ability to participate in that next year requires a minimum salary reduction election to the health FSA for that next year.

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