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Proposed Regulations for Medical Care Arrangements & 213(d) Expenses

On June 8, 2020, the Internal Revenue Service (IRS) proposed regulations addressing proposed regulations on the treatment of amounts paid for two medical arrangements:  Direct Primary Care (DPCs) Arrangements and Health Care Sharing Ministries (HCSMs).  Currently, HCSM membership fees and DPC payments are not for medical care under Section 213(d), but through the new proposed regulation, in response to Executive Order 13877, would allow the membership fees and payments for direct primary care to be treated as an eligible medical expense.

This proposed regulation would treat the HCSM membership fees and DPC payments as expenses related to certain types of arrangements as eligible medical expenses under Section 213(d) of the code through an employer’s Health Reimbursement Arrangement (HRA).  The employee would be reimbursed for HCSM membership fees and DPC payments through the employer sponsored HRA.

Code Section 213 allows individuals to deduct medical care which includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

Health Care Sharing Ministries are formed by members of religious groups that share health care costs without having to meet the requirements of the Affordable Care Act (ACA) for covering a comprehensive set of benefits.  These individuals share their medical bills through the ministry and receive payments from other members to help with medical bills.

Direct Primary Care Arrangements are contracts between an individual and one (or more) primary care physicians under which the physicians agree to provide medical care for a fixed annual or periodic fee without billing a third party.

This regulation will enhance employers’ and employees’ ability to use the HRA to pay for medical services without purchasing traditional group health insurance.

The proposed regulations would apply for tax years beginning on or after the date they are published in final form.  Currently the IRS is accepting comments, so the final regulations are expected after August 10, 2020.  Stay tuned as BASE® will keep you updated when additional information becomes available! 

New ICHRA Proves to Be Beneficial

Prior to 2020, some small businesses had found it difficult to provide benefits to their employees under a traditional group health plan, but as of January 1, 2020, a new regulation expanded how Health Reimbursement Arrangements could be used and how employers pay for employee health care coverage.  The rule was set to benefit small employers, making it easier for them to compete with larger businesses by creating another option to provide their employees with a competitive benefit package.  The Individual Coverage Health Reimbursement Arrangement (ICHRA) was projected to benefit over 800,000 small businesses and help 11.4 million employees and their family members purchase individual insurance coverage using HRA funds.

The BASE® Individual Coverage HRA (ICHRA) is a tax-advantaged health benefit used to reimburse employees for personal health care expenses, such as individual health insurance premiums and out-of-pocket medical expenses.  The ICHRA provides a health benefit to better fit the needs of many businesses, of all sizes.  It allows for the opportunity to increase flexibility and employee choice by designing a reimbursement that works for the business for their employees’ individually purchased insurance.

Almost halfway through 2020, what has BASE® been seeing with the ICHRA?

BASE® is on their way to helping many small businesses across the country save thousands of dollars each year with the Individual Coverage HRA, and most are choosing to reimburse both insurance premiums and out-of-pocket expenses.  New with this HRA and one of the biggest selling points is the ability to establish different reimbursement rules for different types of employees (i.e. classes).  These classes allow for a flexible benefit solution, and many businesses are commonly separating their salary and hourly employees to determine the benefit they receive.

According to Casandra Mueller, BASE® Sales Representative, she knows that for employers keeping and retaining employees is hard.  “Finding a way to offer benefits that are tax-free to the employee and a tax-deductible expense to the employer is what makes the ICHRA beneficial.  The ICHRA is a great avenue for employers to take that first step into offering benefits to employees, even if it is a small dollar amount.”

With the ICHRA, both the employer and employees realize benefits.  The employer can provide their employees with a better choice in health care, with the employee choosing their own health insurance plan meant to fit the employees’ lives, as well as economic and family status.  The ICHRA offers better cost control.  The employer does not need to worry about increases in insurance premiums since the employer establishes an affordable monthly allowance for employees to put towards individual health insurance premiums and out-of-pocket medical expenses.  This creates an expected monthly amount for both the employer and employee with no surprises!  

Talk to BASE® about getting started with the ICHRA today.  Call 888.386.9680 or visit www.BASEonline.com