The recent proposal from the Internal Revenue Service (IRS) could significantly impact how health care sharing ministries and Health Reimbursement Arrangements (HRAs) interact, offering more flexibility for American workers seeking affordable healthcare options. As many individuals turn to these lower-cost programs to manage their medical expenses, understanding the implications of this proposed rule is essential for employers and employees alike. This guide explores what the new IRS guidance means for sharing ministries, HRAs, and the evolving landscape of healthcare benefits.
IRS Regulations and Their Impact on Sharing Ministries
The IRS has proposed a rule that would classify certain payments—such as fees for direct primary care, contributions to health care sharing ministries, and some public coverage expenses—as tax-deductible qualified medical expenses. If this proposal is adopted, it would mark a significant shift in how non-traditional healthcare options are viewed for tax purposes.
> Should the rule pass, it would represent a move away from long-standing efforts to distinguish between traditional health insurance and alternative healthcare payment systems.
What Is a Health Care Sharing Ministry?
Before delving into regulatory changes, it’s helpful to understand what health care sharing ministries are. These are community-based programs that provide an affordable alternative to traditional health insurance by bringing together individuals with shared values who agree to assist each other with medical costs. These ministries typically operate through a shared fund where members contribute monthly, which can then be used to cover eligible medical expenses.
Many of these ministries have established networks, often PPO-like, which help control costs and expand access. Growing in popularity due to their lower premiums and community focus, some prominent examples include Medi-Share, Liberty HealthShare, Christian Healthcare Ministries, Altrua Health Share, Shared Health Alliance, and Samaritan Ministries.
Are Sharing Ministries Considered Insurance?
No, these programs are not classified as insurance, but they are exempt from certain ACA mandates. This exemption means participants are not penalized for lacking traditional insurance coverage, which is a critical factor for many seeking affordable healthcare solutions.
> While not legally insurance, sharing ministries have a special exemption under the Affordable Care Act (ACA) from the requirement to maintain Minimum Essential Coverage (MEC). However, this exemption has posed challenges for those participating in qualified small employer health reimbursement arrangements (QSEHRAs), which require MEC to qualify for tax advantages. The proposed IRS rule aims to clarify and potentially ease this issue.
This proposed guidance does not redefine sharing ministries as insurance but rather recognizes them as valid medical expense options under federal tax law. For more details on how HRAs are regulated, visit understanding the definition and function of apps in healthcare.
Designing Your HRA in Light of New Regulations
Thinking about how to structure your HRA to accommodate these changes? Consulting with a benefits specialist can help tailor a plan suited to your needs.
What Does the Recent IRS Update Mean for QSEHRA and Sharing Ministries?
The core issue revolves around the MEC requirement for Qualified Small Employer HRA (QSEHRA). To qualify for tax-free reimbursements, employees must be enrolled in a plan that meets MEC standards. Traditionally, health care sharing ministries alone did not satisfy this requirement, necessitating additional coverage.
> The proposed rule suggests that, while it doesn’t alter the fundamental definition of insurance, it could permit employees to be reimbursed tax-free for expenses related to sharing ministries through a QSEHRA, provided they also maintain a MEC plan.
Since QSEHRA’s inception in December 2016, guidance on how these programs can work together has been ambiguous. Our previous analysis highlighted the complexities of this issue. The new legislation appears to endorse the practice of supplementing sharing ministries with MEC plans, often called “Skinny MECs,” which typically cost around $70–$100 monthly. This approach ensures compliance while allowing for tax-advantaged reimbursements.
Effect on Individual Coverage HRAs (ICHRA)
For those enrolled in an ICHRA, the new guidance indicates that costs associated with sharing ministries could be considered tax-deductible medical expenses under Section 213(d). However, an ICHRA still requires participants to maintain a qualified health plan, and participating in a sharing ministry alone does not meet this criterion.
Interesting:
- Navigating the impact of phi and pii on hipaa compliance and healthcare marketing
- Evaluating the benefits and drawbacks of healthcare sharing ministries
- Exploring alternative health coverage options can religious cost sharing ministries help cover your medical expenses
- Navigating healthcare contracts and payor agreements a comprehensive guide
This means that, although sharing ministry payments might be viewed as deductible, individuals would likely need to maintain a marketplace or other qualified plan to avoid double coverage or unnecessary costs. This keeps the ICHRA framework largely unchanged but clarifies the treatment of sharing ministry expenses.
What About Direct Primary Care Arrangements?
The proposed rules also provide clarity for direct primary care (DPC) agreements. These arrangements involve a contract between a patient and a primary care provider for a fixed fee—often annually or periodically—without third-party billing. The IRS now suggests that HRAs can be used to pay for DPC fees, as they fall under the definition of medical care under IRS Section 213.
In defining a “primary care physician,” the proposal currently includes family medicine, internal medicine, geriatrics, and pediatrics. It remains to be seen if the definition will expand to include nurse practitioners or physician assistants, who are increasingly vital in primary care delivery.
Both ICHRA and QSEHRA participants could potentially use their plans to cover DPC fees under these new guidelines, opening new avenues for affordable primary care access.
When Will These Changes Take Effect?
If the IRS finalizes this proposal, the new rules would become effective for the tax year following the publication of the final regulation. This timeline provides a window for employers and employees to prepare and adjust their healthcare strategies accordingly.
Need Additional Assistance?
We are monitoring these developments closely. If you have questions or need guidance on your healthcare options, our team is ready to assist. Explore our guides on various plan types or reach out directly to discuss the best approach for your situation.
Other helpful resources include:
This information was originally published in 2020 and has been updated for 2023 to reflect the latest regulatory changes.
Connect With Us
Let’s discuss your HRA options
Fill out the form below to connect with our team and determine if an HRA is right for you.
—
About the author:
Ruth S. grew up in Oklahoma and now resides in Alabama. She studied journalism at the University of Missouri and has a passion for writing, good food, and books. When not working, she enjoys reading and knitting with a glass of wine in hand.