Important Information Regarding Notice 2015-87

In December, the IRS, DOL and HHS issued IRS Notice 2015-87, which provided further guidance on the application of the group health plan market reform provisions of the Affordable Care Act to employer-provided health coverage. The notice covers health reimbursement arrangements (HRA), including HRAs integrated with a group health plan, and group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. It also covers the treatment of flex credit contributions and Health Flexible Spending Account (FSA) carryover clarifications. 

These changes impact both eligibility and affordability when HRA, FSA or Flex Credits are part of your employee benefit plan.  We encourage employers to understand these impacts and to ensure their plan documents and employee participation guidelines follow this new guidance.

Changes to HRAs and Flex Credits

Under the notice, there is no family HRA unless all family members have other group health coverage. If an HRA is broadly available to every family member of an employee, then every family member of that employee must be enrolled in other group health coverage. The IRS, DOL and HHS encourage plan sponsors to limit HRA eligibility to those persons enrolled in the employer’s group health coverage to facilitate this restriction.

Employer flex credit contributions may also impact coverage affordability. If employers provide flex credits to a cafeteria plan that may be used exclusively to pay for health care benefits, those flex credits can be treated as reducing the employee’s cost of health coverage when calculating affordability. If the flex credit may be applied for non-health care purposes (such as dependent care or life insurance) or may be cashed out as taxable compensation, then it cannot be treated as reducing the employee’s cost for health coverage.

For plan years beginning before January 1, 2017, an employer may treat a flex credit as reducing an employee’s required contribution even if that flex credit may also be applied for non-health care purposes. This relief is only available if the flex credit was in effect on December 16, 2015 and not modified thereafter to be eligible for non-health care purposes.

Opt-out payments may increase the cost of coverage. Employers who offer employees a taxable cash payment for declining coverage, without conditioning such payment on demonstrating that the employee has other group coverage, must increase the applicable employee cost of coverage by the amount of the available opt-out payment. For instance, if self-only coverage costs $100 per month but the employer provides employees who decline coverage with a $200 cash payment, then employers must treat all employees as being required to pay $300 for coverage.

Health FSA Carryover Clarifications

Plans may require participation in the subsequent year to access carryover amounts. If a plan provides for a health FSA carryover, it can limit that carryover to participants who elect to make a health FSA salary deferral in the subsequent year.

Health FSAs may limit carryover for a maximum period. The notice clarifies that, notwithstanding the addition of a carryover feature, the health FSA may limit the period for which unused amounts will carry over.

If your documents are maintained by Lifetime Benefit Solutions, our compliance team will be reaching out to you with additional information.

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