The Internal Revenue Service recently issued a proposed rule that would expand the ability of HRAs to reimburse employees tax free monthly payments of health care sharing ministries. More flexibility is good news for the approximately million Americans who use these lower-cost programs to address health care needs. Let's look at what this proposed IRS update means for sharing ministries and HRAs.
IRS Rules and Sharing Ministries
The proposed rule concludes that fees for direct primary care, “shares” to a health care sharing ministry, and payments for some public coverage should be considered as tax-deductible qualified medical expenses.
If adopted, the rule would shift a long-standing effort to separate out non-traditional health care payment programs and traditional health insurance programs.
What is a health care sharing ministry?
First, let's jump in to a little background information.
A health care sharing ministry is an affordable alternative to health insurance that brings together a group of like-minded individuals that help each other share the burden of unexpected medical costs. They often have a PPO network along with a more affordable price tag.
With health care costs as high as they are, healthcare sharing ministries are exploding in popularity due to their lower costs and shared values they promote. Some examples are Medi-Share, Liberty HealthShare, Christian Healthcare Ministries, Altrua Health Share, Shared Health Alliance and Samaritan Ministries.
Are health care sharing ministries considered insurance?
No, they are not. But they qualify for an exemption under the ACA so individuals on the programs are not penalized for having non qualified health coverage.
While not considered insurance, sharing ministries have a special exemption under the ACA from maintaining Minimum Essential Coverage. But for individuals who wish to participate in QSEHRAs, this has posed a bit of a conundrum — one that the new IRS rules will hopefully clear up.
The newly proposed guidance doesn't change the definition of insurance or legitimize healthcare sharing ministries as insurance; instead it classifies sharing ministries as an eligible care expense.
→ Learn about the HRA IRS rules.
What does new IRS update mean for QSEHRA and sharing ministries?
In order to receive the tax-free benefits of a Qualified Small Employer HRA (QSEHRA), a participant must enroll in a plan that meets minimum essential coverage (MEC). This also has meant that health care sharing ministries aren't sufficient on their own; they need to be accompanied by a MEC plan to qualify.
The MEC requirement has posed problems for people who want to use their QSEHRA toward a health care sharing ministry.
The proposed rule would not change the MEC requirement or the definition of insurance, but could make it possible for employees to be reimbursed for their health care sharing program through a QSEHRA tax-free.
Since the inception of QSEHRA in December of 2016, the IRS has failed to provide guidance on how sharing ministries work with QSEHRA. We explored this rather circular reference in detail in this blog post.
Due to the gray area that the IRS created initially, we've been encouraging employees of our clients to purchase a MEC supplement plan alongside their sharing ministry program to participate in QSEHRA. "Skinny MEC" plans usually run around $70-$100 per month. The new legislation confirms that this is the best course of action but now allows the sharing ministry payments to be reimbursed tax-free alongside the MEC plan.
What the new IRS update on healthcare sharing ministries means for Individual Coverage HRAs
An Individual Coverage HRA (ICHRA) must be integrated with a qualified health plan—whether an individual plan, Medicare, or student insurance—to meet federal requirements. Since its inception this past January, it has been understood that ICHRAs do not work with health sharing ministries. ICHRA can reimburse both premiums and expenses(if allowed by the plan sponsor) as long as the eligible employee maintains a qualified plan.
Sharing plans still will not integrate with ICHRA, but costs for these ministries now will qualify as payments for a medical care expense under Section 213(d), and should be considered tax-deductible. But does that really change anything?
The new update, if passed, would allow for sharing ministry expenses to be tax-free, but it wouldn't erase the fact that individuals would need to have a marketplace plan in addition to a sharing ministry. And that leaves the individual with double coverage, which makes no financial or logical sense.
So, there's no major change with ICHRA.
What does the new proposed IRS guidance say about direct primary care?
For people who want to participate in a direct primary care arrangement, which the proposed rule defines as “a contract between an individual and one or more primary care physicians where a physician agrees to provide medical care for a fixed annual or periodic fee without billing a third party,” the proposed rule would also be good news.
According to the new proposed rule the IRS states that individuals can use HRAs to pay for direct primary care fees, declaring that this type of payment is considered medical care under IRS Section 213.
The proposed regulations define a “primary care physician” in a direct primary care arrangement as a physician who has a primary specialty designation of family medicine, internal medicine, geriatric medicine, or pediatric medicine. We are waiting to see if the definition may be expanded to include nurse practitioners, clinical nurse specialists or physician assistants, since these professionals are playing an increasing role in providing primary care to Americans.
Both ICHRA and QSEHRA participants would be able to submit expenses for direct primary care fees under the new proposed rules.
When will this go into effect if it's passed?
If passed, the rule would go into effect for the next tax year after the publication of the final rule.
What happens next?
Written or electronic comments and requests for a public hearing must be received by August 10, 2020.
Still need help?
We are keeping a close eye on this issue. If you have any questions in the meantime, our team is ready to help you. Read our guides about various plan options or chat with our team. We are happy to help.
Other helpful resources:
Ruth grew up in Oklahoma but now lives in Alabama. She studied journalism at the University of Missouri and is passionate about good food, books and writing. In her free time, you'll often find her reading and knitting with a glass of wine at hand.