IRS Notice Fills in Many Gaps in Health Coverage Rules

By Sally P. Schreiber, J.D.

Twenty-six Q&As issued by the IRS on Thursday provide further guidance on a wide variety of issues affecting employer-provided health coverage under the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148 (Notice 2015-87). The notice also provides penalty relief for applicable large employers that have made a good-faith effort to comply with the Sec. 6056 reporting requirements for 2015.

The notice provides a detailed explanation of the interplay of health reimbursement arrangements (HRAs) and PPACA’s market reform requirements, which was previously the subject of guidance in Notice 2013-54. For example, the notice explains that HRA amounts can be used to purchase excepted coverage such as dental insurance without running afoul of the laws but cannot be used to reimburse the medical expenses of a spouse or dependent of an employee with self-only coverage.

The notice also clarifies how the Sec. 4980H employer shared-responsibility provision applies to determine the 9.5% affordability threshold and the identification of employee contributions to the cost of coverage when employers offer HRAs, flex credits, opt-out payments, or fringe benefit payments required under certain federal laws.

The notice also explains how Sec. 4980H applies to government entities and how health savings accounts (HSAs) can be integrated with Department of Veterans Affairs benefits.

The new rules that allow carryover of up to $500 of unused amounts in a health flexible spending arrangement (health FSA) require an explanation of how those amounts may be used when the participant is eligible for COBRA continuation coverage, including any conditions that may be put on the use of carryover amounts.

And, last, the notice provides relief from the Sec. 6721 and 6722 penalties for applicable large employers (ALEs) that make a good-faith effort to comply with the new Sec. 6056 reporting requirements for 2015. The relief is provided for returns and statements filed and furnished in 2016 to report offers of coverage in 2015 for incorrect or incomplete information reported on the return or statement.

This penalty relief does not apply in the case of ALEs that cannot show a good-faith effort to comply or that fail to timely file an information return or furnish a statement. However, as is currently allowed with existing information-reporting rules, ALEs that fail to timely meet the requirements may still be eligible for penalty relief under the Sec. 6724 reasonable-cause standards.

Sally P. Schreiber ( is a Tax Adviser senior editor.

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