On January 23, 2014, the IRS issued proposed regulations addressing the scope of minimum essential coverage (MEC) under the Affordable Care Act (ACA) (79 Fed. Reg. 4302 (Jan. 27, 2014)). The proposed regulations also address health reimbursement arrangements (HRAs) and wellness program incentives, among other things. In conjunction with the proposed rules, the IRS issued Notice 2014-10, which offers transition relief for 2014 from the individual shared responsibility payment for individuals with certain government-sponsored health coverage.

The proposed rules build on final regulations addressing the individual mandate and the MEC requirement, which were issued in August 2013 (see Legal Update, IRS Finalizes Rules for Individual Mandate and Minimum Essential Coverage).

Under the ACA, most nonexempt individuals must either maintain MEC or make a shared responsibility payment (26 U.S.C. § 5000A). MEC includes:

The proposed regulations clarify the types of coverage, including coverage through government-sponsored programs, that do not qualify as MEC. In addition, the proposed regulations provide that MEC does not include coverage, whether insurance or otherwise, consisting solely of excepted benefits.

Under the individual mandate rules, an individual is exempt for a month when the individual cannot afford MEC. Under proposed regulations issued in May 2013, amounts that are newly made available for the current plan year under an HRA that is integrated with an eligible employer-sponsored plan are taken into account only in determining the coverage's affordability if the employee may either:

(See Legal Update, IRS Proposed Rules Address Exchange Minimum Value and Affordability Rules for HRAs, HSAs and Wellness.) For a discussion of when HRAs are considered integrated with an employer plan, see Practice Note, Health Reimbursement Arrangements (HRAs): Integration, Nondiscrimination, and Group Health Plan Compliance.

Similar to the May 2013 regulations, the proposed regulations provide that an employer's new contributions to an HRA will be taken into account in determining an employee's required contribution (that is, to reduce the contribution) if:

However, amounts in an HRA that may be used only for cost-sharing are not considered when determining affordability because they cannot affect the employee's out-of-pocket cost of acquiring MEC.

The proposed regulations also address how nondiscriminatory wellness program incentives that may affect an employee's cost sharing should be taken into account. Under the May 2013 regulations, for purposes of determining an individual's required contribution for employer-sponsored coverage, wellness program incentives are treated as earned only if the incentives relate to tobacco use (see Legal Update, IRS Proposed Rules Address Exchange Minimum Value and Affordability Rules for HRAs, HSAs and Wellness and Practice Note, Wellness Programs). Consistent with the May 2013 regulations, the proposed regulations provide that, for purposes of determining an individual's required contribution for coverage under an employer-sponsored plan, wellness program incentives are treated as earned only if the incentives relate to tobacco use.

The proposed regulations address several other issues, including:

The proposed regulations, which would apply for months beginning after December 31, 2013, also schedule a public hearing on the regulations for May 21, 2014.