UPDATE:
The IRS changed positions yet again. Just one week after we published the original blog post, the IRS reversed itself in Notice 2015-68, which says that an employer's HRA that is integrated with its fully insured medical coverage will not be required to separately report the HRA coverage on Form 1095-B or Form 1095-C. Separate reporting will be required, however, if an employer's HRA covers people who have other medical coverage not sponsored by that same employer (e.g., an HRA that reimburses out-of-pocket expenses under a spouse's employer's plan).
So it's back to business as usual. Whew!
ORIGINAL POST:
Small employers whose plans have both insured medical and an HRA should take note. While analyzing the IRS' recent draft instructions for 1094/1095 reporting, we found something peculiar. In the draft instructions, the IRS indicates that employers with fully insured medical plans and health reimbursement arrangements (HRAs) will have to separately report the HRA coverage, meaning that many small employers that thought they were exempt from employer reporting are not fully exempt. Transmittals for calendar year 2015 are due in January or March of 2016, which means the time to act is now.
Brief Background
Beginning in 2016, the ACA requires insurers and certain employers to report to the IRS what is essentially eligibility and enrollment information. Employers having fewer than 50 full-time equivalents with insured medical coverage are exempt; small employers with self-insured medical plans have a limited obligation to report just who's covered and not who's eligible. Technically, under ERISA and the Internal Revenue Code HRAs are, in fact, tiny self-insured medical plans. In all but the most unusual cases, though, HRAs supplement major medical coverage, so the benefits compliance community assumed that HRAs integrated with a major medical plan, regardless of whether insured or self-insured, would be considered supplemental coverage not requiring any reporting—a legitimate assumption given that other IRS guidance (here, here and Q&A-14 here) indicated special reporting for HRA coverage would not be required. Then, in the recently released draft instructions for Forms 1094 and 1095, the IRS took an about-face.Reporting Required for HRAs Integrated with Fully Insured Medical Coverage
ACA employer reporting is required for so-called “minimum essential coverage,” which includes most group health plans, but does not include excepted benefits (such as stand-alone dental or vision coverage). Also excluded is self-insured coverage that is considered a supplemental benefit. In the draft instructions for Form 1094-B and 1095-B (the “B” forms), the IRS states that HRAs integrated with a fully insured plan are not treated as supplemental coverage. According to the new IRS instructions, the supplemental benefit exception applies only when the primary and supplemental coverages have the same plan sponsor and the same reporting entity. It's the addition of this last phrase that changes the situation entirely.Due to this IRS interpretation, an employer that offers an HRA integrated with a self-funded major medical benefit is not required to report the HRA coverage because the employer is the plan sponsor for both benefits and the employer is also the reporting entity for both benefits. However, in the case of an HRA integrated with a fully insured major medical benefit, the reporting entities are different. The insurance company is the reporting entity for coverage information and will be sending employees covered by the plan a Form 1095-B. But the employer is the reporting entity for the self-insured HRA and, according to this guidance, must report coverage information for the HRA.
Here's how the reporting works for small employers (employers with fewer than 50 full-time equivalents):
- Reporting will be required on the “B” forms for any individuals covered under the HRA (including dependents, COBRA beneficiaries, retirees and covered non-employees such as non-employee directors).
- The employee gets form 1095-B; the IRS gets copies of all 1095-Bs along with a transmittal "cover sheet" Form 1094-B.
- The “B” forms are much simpler than the “C” forms, generally requiring only basic employer contact information and the name, SSN and coverage months for any individuals covered under the HRA.
- Covered individuals will receive a Form 1095-B from the insurance carrier for the fully-insured medical coverage and a second Form 1095-B from the employer for the self-insured HRA coverage.
- Note that an individual is covered if expenses incurred by that person are reimbursable under the plan; so even if the employee is the only one submitting claims, if the employee can submit claims incurred by his/her spouse or children, then those dependents are covered and must be reported.
Concluding Thoughts
This revelation from the IRS means that small employers that originally assumed they were exempt from 1094/1095 reporting must now report using the “B” forms early in 2016 for the 2015 calendar year. Yes, these instructions are in draft form only, but we do not expect to see any significant changes in the final instructions.For the most part, employers will easily be able report information for who is covered by the employer's HRA; however, some employers may struggle to obtain information (including names and SSNs) of covered dependents. Hopefully some coordination with the insurance carrier, who is also required to report this information for the fully-insured coverage, or the vendor who administers the HRA plan, will help to alleviate some of the administrative burden.