The President recently signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act). The Act’s primary focus is highway transportation and the quality of health care provided to veterans, however there are two provisions that amend the Internal Revenue Code (the Code) regarding health coverage for veterans and their dependents. These amendments are retroactive to January 1, 2014.
Veterans Can Be Excluded For Applicable Large Employer (ALE) status
Section 4007(a) of the Act amends the definition of “applicable large employer” (ALE). In general, an employer is an ALE if there was an average of at least 50 full-time employees (including full-time equivalents) employed during the preceding calendar year. The employer shared responsibility mandate (§4980H) to offer medical coverage and the related reporting requirements (§6056) of the ACA only apply to ALEs. The amended ALE definition allows employers to exclude an individual from being counted as an employee for any month that the employee had medical coverage under TRICARE or the Veterans Administration (VA).
Since the new definition is retroactive to January 1, 2014, it may change an employer’s ALE status for 2015. If the change in definition reduces an employer’s 2014 employee count under 100, the employer has an extra year before becoming subject to the employer shared responsibility mandate. If the change in definition brings the employer’s 2014 employee count under 50, then the employer is exempt from the employer shared responsibility mandate as well as reporting requirements in 2015.
Legislators who pushed for this Act hope that this will encourage small employers to hire veterans.
It is important to note that though this exclusion primarily applies to veterans, civilians may also have coverage under TRICARE or the VA if they are a spouse, survivor, or dependent of an active or retired service member or certain veterans. An employer may exclude from the employee count for that month any individual who is received medical coverage through either TRICARE or the VA, regardless of whether the individual is a veteran.
HSA Eligibility for Veterans
Section 4007(b) of the Act amends the eligibility rules for contributing to a Health Savings Account (HSA). In general, in order to be eligible to make tax-favored contributions to an HSA, an individual must be covered under a high deductible health plan (HDHP) and may not be covered under any health plan that is not an HDHP. This amendment adds an exception that an individual who is otherwise eligible to contribute to an HSA will not lose that eligibility due to receiving treatment at a VA facility for a service-connected disability. Without the amendment, the coverage provided by the VA would count as non-HDHP coverage and would cause the veteran to lose eligibility for the HSA.
If you have any questions regarding these changes, please contact your Keller account team.