IRS Proposal Bolsters Alternative Health Coverage Arrangements

June 8, 2020, 10:54 PM

The Trump administration moved to enhance employers’ and workers’ ability to use health reimbursement arrangements to pay for medical services without purchasing traditional insurance.

Employers would be able to fund employees’ direct primary care through HRAs under a proposal released Monday by the Internal Revenue Service. In addition, employers would also be able to reimburse employees through HRAs for memberships in health-care sharing ministries under the proposal.

The proposal responds to a 2019 executive order by President Donald Trump that, among other things, directed the secretary of the Treasury to propose regulations to enhance the ability of patients to choose their health care.

Direct primary care and health-care sharing ministries are alternative types of health-care arrangements that are outside of insurance and don’t have to meet the requirements of the Affordable Care Act.

The proposal addresses the treatment of some types of medical care arrangements under Section 213 of the Internal Revenue Code. That section allows people to take itemized deductions for medical expenses, including health insurance, if the expenses exceed 7.5% of adjusted gross income.

Payments for Medical Care

Because payments for direct primary care and health-care sharing ministry memberships are for medical care, health reimbursement arrangements provided by employers can be used to reimburse employees, the Internal Revenue Service said in the proposal.

Health reimbursement arrangements are employer-funded accounts that reimburse employees for medical expenses and, in some cases, insurance premiums. Employers can claim a tax deduction for the reimbursements, and reimbursements received by employees are generally tax free.

In direct primary care, patients make payments on a monthly, quarterly, or annual basis for family physicians for primary care. The plans are separate from health insurance plans.

In health-care sharing ministries, members of religious groups share health-care costs without having to meet the requirements of the ACA for covering a comprehensive set of benefits.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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