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IRS Invites Comments on Application of Employer Shared Responsibility and Nondiscrimination Rules to HRAs Integrated With Individual Health Insurance


· 5 minute read


· 5 minute read

IRS Notice 2018-88 (Nov. 19, 2018)

Available at

The IRS has issued a notice proposing regulatory positions, and inviting comments, regarding application of the Code’s employer shared responsibility and self-insured health plan nondiscrimination rules to HRAs that are integrated with individual health insurance coverage (ICHRAs). ICHRAs are currently prohibited, but would be permitted under proposed regulations (see our Checkpoint article). Like the proposed regulations, the notice does not provide guidance on which taxpayers may rely. Here are highlights:

  • Employer Shared Responsibility. The notice clarifies the expected application to ICHRAs of certain employer shared responsibility rules (which were not addressed in the proposed regulations) and describes several potential affordability safe harbors.

    • Code § 4980H(a). ICHRAs would be considered eligible employer-sponsored plans, so an applicable large employer (ALE) could count ICHRA offers toward the 95% threshold for avoiding penalties under Code § 4980H(a).
    • Affordability Under Code § 4980H(b). To determine the affordability of ICHRA coverage, the proposed regulations treat an employee’s required contribution for individual coverage as the excess of the monthly self-only premium for the lowest-cost silver plan offered by the Exchange where the employee resides over the self-only amount made available to the employee under the ICHRA for the month. To reduce the administrative burden of making that calculation, anticipated guidance would allow ALEs to determine the silver plan premium based on each employee’s worksite (rather than the employee’s residence). ALEs with calendar-year ICHRAs could use the silver plan premium for the prior calendar year to calculate affordability, allowing ICHRA contributions to be determined before premiums are announced for the Exchanges’ November 1 open enrollment. To address potential premium changes where an ICHRA plan year spans two calendar years, ALEs could assume that the relevant silver plan’s premium for the first month of the plan year will be the same for all months in the plan year. Additional guidance would explain how the three affordability safe harbors (Form W-2, rate of pay, and federal poverty line) apply to ICHRA offers.
    • Minimum Value Under Code § 4980H(b). ICHRA coverage that is affordable—taking into account the affordability safe harbors and the special rules for ICHRAs—would be treated as providing minimum value for employer shared responsibility purposes.
  • Nondiscrimination. Because the proposed regulations would allow employers to limit offers of ICHRAs to certain classes of employees and to vary contribution amounts among the classes, the IRS anticipates issuing guidance providing that an ICHRA would not fail to meet the Code § 105(h) requirement for uniform employer contributions so long as the same terms and maximum dollar limit apply to all employees within a particular class. However, an employer generally could increase ICHRA contributions for older participants commensurate with age-based premium increases without violating the uniform contribution rule.

EBIA Comment: Employers interested in adopting ICHRAs and their advisors will want to familiarize themselves with the notice and its proposals. Comments are due by December 28, 2018, and have been requested on various issues, including the use of age bands or other assumptions to simplify employee-by-employee affordability determinations that vary (according to silver plan premiums) based on employees’ ages. ALEs will welcome the proposal to treat ICHRAs as eligible employer-sponsored plans, potentially providing an economical way to avoid Code § 4980H(a) liability. For more information, see EBIA’s Consumer-Driven Health Care manual at Section XXI.A.4 (“Proposed Regulations Would Expand the Use of HRAs”). See also EBIA’s Health Care Reform manual at Section XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”) and EBIA’s Self-Insured Health Plans manual at Section XII (“Nondiscrimination Rules Under Code § 105(h)”).

Contributing Editors: EBIA Staff.

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