Skip to main content

EB Flash: IRS Proposes Individual Coverage HRA Safe Harbors

Employee Benefits Alert

The Internal Revenue Service (IRS) has issued proposed regulations including individual coverage health reimbursement arrangement (ICHRA) safe harbors addressing the application of the employer shared responsibility provisions under Internal Revenue Code section 4980H (ESRP). In June 2019, the IRS issued final regulations expanding the use of ICHRAs.

The proposed regulations "clarify the application of the employer shared responsibility provisions [under section 4980H] and certain nondiscrimination rules under [section 105(h) of] the Internal Revenue Code (Code) to health reimbursement arrangements (HRAs) and other account-based group health plans integrated with individual health insurance coverage or Medicare [ICHRAs], and … provide certain safe harbors with respect to the application of those provisions to [ICHRAs]. The proposed regulations are intended to facilitate the adoption of [ICHRAs] by employers, and taxpayers generally are permitted to rely on the proposed regulations. The proposed regulations would affect employers, employees and their family members, and plan sponsors."

Specifically, the guidance outlined three new optional safe harbors for ICHRAs - the location, age and look-back month safe harbors, explained the application of the household income safe harbors to ICHRAs, and provided analysis with respect to minimum value and tax reporting requirements for ICHRAs. The proposed regulations also provide limited guidance in analyzing nondiscriminatory benefits under section 105(h) due to variations based on age and employer contributions. The proposed regulations further clarify when cafeteria plan reimbursement is available for any portion of an individual coverage premium not covered by the ICHRA employer contribution.    

Location Safe Harbor:

  • For purposes of determining ESRP affordability, an employer may use the lowest cost silver plan for self-only coverage offered through the Exchange available at the employee's primary site of employment. 
  • An employee's primary site of employment generally is the location at which the employer reasonably expects the employee to perform services on the first day of the plan year.
  • An employee's residence is the primary site of employment for an employee who works remotely from home who does not have a particular assigned office space to which to report. 

Age Safe Harbor:

  • The employee's age for the plan year is the employee's age on the first day of the plan year for an employee who is eligible for an ICHRA on the first day of the plan year.
  • The lowest cost silver plan for the lowest age band in the individual market for the employee's applicable location is the lowest cost silver plan for an employee for a month.

Look-Back Month Safe Harbor:

  • An employer offering an ICHRA may use the monthly premium for the lowest cost silver plan for January of the prior calendar year to determine the employee's required contribution for a calendar year plan.   

Household Income Safe Harbors:

  • Employers offering ICHRAs are permitted to utilize the household income safe harbors to determine whether the offer of the ICHRA is affordable for ESRP purposes. The household income safe harbors are modified to incorporate the required contribution percentage (rather than the static 9.5 percent).

Minimum Value:

  • An ICHRA that is affordable for ESRP purposes is treated as providing minimum value.

Tax Reporting:

  • Employers that offer an ICHRA will be required to satisfy section 6056 reporting requirements. 
  • Additional reporting guidance will be provided in the required forms and instructions.


  • In general, benefits subject to reimbursement under a plan may not discriminate in favor of highly compensated individuals.  
  • A plan may establish a maximum limit for the amount of reimbursement which may be paid for any single benefit. Any maximum limit attributable to employer contributions generally must be uniform for all participants and generally may not be modified because of the participant's age or years of service.  
  • A special exception to the uniformity rule allows ICHRAs to vary the maximum dollar amount made available to participants within a permitted class of employees based on the number of dependents and the age of the participant provided that the same maximum dollar amount is provided to participants who are the same age and further provided that the maximum dollar amount for the oldest participants cannot be more than three times the maximum dollar amount provided to the youngest participants.  

Cafeteria Plan Reimbursement:

  • If the ICHRA employer contribution does not cover the entire premium cost, a participant may obtain reimbursement from a cafeteria plan for the premium remainder if the individual coverage is an off-Exchange product.  
  • If the ICHRA employer contribution does not cover the entire premium cost, a participant may not obtain reimbursement from a cafeteria plan for the premium remainder if the individual coverage is an Exchange product.  

The proposed ESRP regulations are proposed to apply for periods beginning after December 31, 2019, and the proposed regulations under section 105(h) are proposed to apply for plan years beginning after December 31, 2019.  The IRS has indicated that taxpayers may generally rely upon the proposed regulations.

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.