ACA reporting, excise taxes may confront HRAs

Recently released draft instructions for some new information reporting requirements under the Patient Protection and Affordable Care Act (ACA) have generated questions about health reimbursement arrangements (HRAs) and the scope of reporting. At the same time, employers with stand-alone HRAs face potential excise taxes unless Congress provides relief.

Code Sec. 6055, added by the ACA, provides that every provider of “minimum essential coverage” must report coverage information by filing an information return with the IRS and furnishing a statement to individuals. Code Sec. 6056, also added by the ACA, requires applicable large employers (ALEs) to file information returns with the IRS, and provide statements to their full-time employees about the health insurance coverage the employer offered.

The IRS has released draft instructions for filing information returns required by the ACA. The draft instructions cover Forms 1094-B, Transmittal of Health Coverage Information Returns; 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns; 1095-B, Health Coverage; and 1095-C, Employer-Provided Health Insurance Offer and Coverage.

In the draft instructions, the IRS explained that providers are not required to report the following minimum essential coverage that is supplemental to other minimum essential coverage: coverage that supplements a government-sponsored program, such as Medicare or TRICARE supplemental coverage; or coverage of an individual in more than one plan or program provided by the same plan sponsor (the plan sponsor is required to report only one type of minimum essential coverage). Coverage is not provided by the same plan sponsor if they are not reported by the same reporting entity. An insured group health plan and a self-insured HRA covering the employees of the same employer are not supplemental, the IRS explained.

The instructions do not change the rules or regulations, Jeff Martin, CPA, senior manager, Washington National Tax Office, Grant Thornton, LLP, told Wolters Kluwer. “For ALEs, if they have a fully insured plan, they are required to file Form 1095-C. If they have an HRA on top of that, they will have to complete Part III of Form 1095- C as well.”

Some small employers, Martin noted, may potentially have more of a burden. “If a small employer has a fully insured plan, the insurer will report information on Forms 1094-B and 1095-B, and the small employer has no reporting requirement. If, on top of the fully insurance plan, the small employer has an HRA that results in a selfinsured plan that triggers a reporting requirement, the small employer will also have to file Forms 1094-B and 1095-B.”

Looming for some employers is potential excise tax liability for stand-alone HRAs under Code Sec. 4980D, unless there is legislative relief, Martin emphasized. In Notice 2013-54, the IRS described these arrangements as employer payment plans, which are considered to be group health plans subject to the ACA’s market reforms. Excise taxes under Code Sec. 4980D apply for failure to comply with the ACA’s market reforms.

The excise tax reaches $100 per affected individual per day. Limited transition relief under Notice 2015-17 from the penalties for qualified small businesses expired after June 30, 2015. Bipartisan legislation has been introduced in the House and Senate (HR 2911; S. 1697) to provide permanent relief. “Under the legislation, small employers would be able to have stand-alone HRAs and reimburse expenses without violating the market reforms,” Martin said.

The penalty, Martin explained, is a self-assessed penalty. Employers will report the penalty when they file their 2015 returns.

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