n-16-17.pdf

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APPLICATION OF THE MARKET REFORMS AND OTHER PROVISIONS OF THE
AFFORDABLE CARE ACT TO STUDENT HEALTH COVERAGE

Notice 2016-17

I. PURPOSE AND OVERVIEW

This notice provides guidance on the application of certain provisions of the
Affordable Care Act
1
to premium reduction arrangements offered in connection with
student health plans and provides temporary transition relief from enforcement by the
Departments of the Treasury, Labor, and Health and Human Services (collectively, the
Departments) in certain circumstances.
On September 13, 2013, the Treasury Department (Treasury) and the Internal
Revenue Service (IRS) published Notice 2013-54,
2
2013-40 IRB 287, addressing the
application of the market reforms to health reimbursement arrangements and employer
payment plans under the Affordable Care Act. The Department of Labor (DOL)
contemporaneously published parallel guidance in Technical Release 2013-03
3
and the
Department of Health and Human Services (HHS) issued guidance stating that it
concurs in the application of the laws under its jurisdiction as set forth in the guidance
issued by DOL and Treasury and IRS.
4
Subsequent guidance reiterated and clarified
the application of the market reforms to employer payment plans.
5
The guidance set

1
The “Affordable Care Act” refers to the Patient Protection and Affordable Care Act (enacted March 23,
2010, Pub. L. No. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010
(enacted March 30, 2010, Pub. L. No. 111-152), and as further amended by the Department of Defense
and Full-Year Continuing Appropriations Act, 2011 (enacted April 15, 2011, Pub. L. No. 112-10). Section
1001 of the Affordable Care Act added new Public Health Service Act (PHS Act) §§ 2711-2719. Section
1563 of the Affordable Care Act (as amended by § 10107(b) of the Affordable Care Act) added Internal
Revenue Code (Code) § 9815(a) and Employee Retirement Income Security Act (ERISA) § 715(a) to
incorporate the provisions of part A of title XXVII of the PHS Act into the Code and ERISA, and to make
them applicable to group health plans and health insurance issuers providing health insurance coverage
in connection with group health plans. The PHS Act sections incorporated by these references are §§
2701 through 2728. Accordingly, these referenced PHS Act sections (the market reforms) are subject to
shared interpretive jurisdiction by the Departments.
2
Notice 2013-54 is available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
3
Technical Release 2013-03 is available at http://www.dol.gov/ebsa/newsroom/tr13-03.html.
4
See Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare
Arrangements, September 16, 2013, available at
https://www.cms.gov/CCIIO/Resources/Regulations-
and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
5
There have been several prior issuances on the topics addressed in this notice: (1) FAQs About
Affordable Care Act Implementation (Part XI), issued on January 24, 2013 by DOL
(http://www.dol.gov/ebsa/faqs/faq-aca11.html) and HHS (http://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/aca_implementation_faqs11.html); (2) IRS Notice 2013-54 and DOL Technical
Release 2013-03, issued on September 13, 2013; (3) IRS FAQ on Employer Healthcare Arrangements
(http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements). (4) FAQs About
Affordable Care Act Implementation (Part XXII), issued on November 6, 2014 by DOL
(http://www.dol.gov/ebsa/faqs/faq-aca22.html) and HHS (
http://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf); Notice 2015-17, 2015-14 I.R.B. 845, issued by

2

out below provides a transition period for the application of certain market reforms to
certain arrangements offered by an institution of higher education to its students that are
designed to reduce the cost of student health coverage (whether insured or self-
insured) through a credit, offset, reimbursement, stipend, or similar arrangement (a
premium reduction arrangement).
The Departments continue to work together to develop coordinated regulations
and other administrative guidance to assist stakeholders with implementation of the
Affordable Care Act. The guidance in this notice is being issued in substantially
identical form by DOL and HHS in separate guidance.
II.
BACKGROUND
Under Notice 2013-54 (the 2013 guidance), an employer payment plan (EPP) is
a group health plan under which an employer reimburses an employee for some or all of
the premium expenses incurred for an individual market health insurance policy or
directly pays a premium for an individual market health insurance policy covering the
employee. EPPs and health reimbursement arrangements (HRAs) typically consist of a
promise by an employer to reimburse medical expenses up to a certain amount. The
2013 guidance clarifies that such arrangements are subject to the group market reform
provisions of the Affordable Care Act, including the prohibition on annual dollar limits
under PHS Act section 2711 and the requirement to provide certain preventive services
without cost sharing under PHS Act section 2713. That guidance generally provides
that EPPs and HRAs will fail to comply with these group market reform requirements
because these arrangements, by their very definition, include dollar limits on the amount
of reimbursements or payments, and therefore violate the Affordable Care Act
prohibition on annual dollar limits and the requirement to provide coverage of certain
recommended preventive services without imposing any cost-sharing requirements.
The 2013 guidance further clarified that such employer health care arrangements
will not violate the market reform provisions when integrated with a group health plan
that otherwise complies with those provisions. Importantly, however, the 2013 guidance
provided that these employer health care arrangements cannot be integrated with
individual market policies to satisfy the market reforms. Consequently, such an
arrangement may be subject to penalties, including excise taxes under section 4980D of
the Code.
On March 21, 2012, HHS published a final rule (the student health insurance
plan or SHIP rule) establishing requirements for student health insurance coverage
under the PHS Act and the Affordable Care Act.
6
The SHIP rule defines “student health

Treasury and IRS on February 18, 2015, and Notice 2015-87, 2015-52 I.R.B. 889, Q&A-1 to Q&A-6,
issued by Treasury and IRS on December 16, 2015.
6
See 45 CFR 147.145.

3

insurance coverage” as a type of individual market health insurance coverage that is
offered to students and their dependents under a written agreement between an
institution of higher education (as that term is defined for purposes of the Higher
Education Act of 1965) and an issuer.
7

Many colleges and universities provide students (typically graduate students)
with student health coverage at greatly reduced or no cost as part of their student
package, which often includes tuition assistance and a stipend for living expenses. The
student health coverage can be provided either through individual health insurance or
through coverage that is self-insured by the college or university. For these students,
the bill they receive from the school for the health coverage premium may take into
account a premium reduction arrangement. Because some of these students also
perform services for the school (such as teaching or research), the question has been
raised whether such premium reduction arrangements might be employer-sponsored
group health plans, and, as a result, might be viewed as EPPs that violate market
reform provisions of the Affordable Care Act. Whether a particular arrangement
constitutes a group health plan will depend on all of the facts and circumstances.
III.
GUIDANCE

In many cases in which a college or university offers a premium reduction
arrangement to its students, the payment arrangement will not constitute an EPP under
the 2013 guidance. In other cases, however, such arrangements might meet the
definition of an EPP. The Departments understand that some schools that have been
offering such premium reduction arrangements might not have recognized at the time of
the 2013 guidance that, in certain circumstances, the arrangements might constitute
EPPs within the meaning of the 2013 guidance and, therefore, violate PHS Act sections
2711 and 2713 because they are not integrated with group health plan coverage and
(as provided in the 2013 guidance and other guidance) cannot integrate with individual
insurance coverage. As a result, the Departments recognize that schools may need
additional time to adopt a suitable alternative or make other arrangements to come into
compliance. Accordingly, the Departments will not assert that a premium reduction
arrangement fails to satisfy PHS Act section 2711 or 2713 if the arrangement is offered
in connection with other student health coverage (insured or self-insured) for a plan year
or policy year beginning before January 1, 2017 (therefore including, for example, plan
years or policy years that are roughly coterminous with academic years beginning in the
summer or fall of 2016 and ending in 2017).

7
Student health insurance plans are regulated under the Affordable Care Act individual market reforms.
See Affordable Care Act sections 1302 and 1201 (incorporating PHS Act section 2701). These
requirements have been modified somewhat for student health insurance taking into account
Congressional intent as expressed in section 1560 of the Affordable Care Act.

4

IV. APPLICABILITY DATE AND EFFECT ON OTHER DOCUMENTS
This notice applies for plan years beginning before January 1, 2017. This notice
supplements the guidance provided in Notice 2013-54 and Notice 2015-87, 2015-52
IRB 889.
V. DRAFTING INFORMATION
This notice was prepared by personnel at the Health and Welfare Branch, Office
of Associate Chief Counsel (Tax Exempt and Governmental Entities), Internal Revenue
Service, with the development of the guidance including personnel at the Treasury
Department, Department of Labor and Department of Health and Human Services. For
further information regarding this guidance, contact the Department of Labor at (202)
693-8335 or the Internal Revenue Service at (202) 317-5500 (not a toll-free call).