An Update on HRA Legislation
By: Christina Merhar (Zane Benefits) July 2015
The stand-alone Health Reimbursement Arrangement (HRA) is dead for most employers. Or, is it?
Two weeks ago, a group of legislators re-introduced the Small Business Healthcare Relief Act (S. 1697 and H.R. 2911). The legislation would allow small employers to once again use an HRA to reimburse employees for health insurance premiums and out-of-pocket medical expenses.
What is the state of the HRA legislation? This article provides a quick guide on the who, what, where, when, and why.
Who is Behind the Bill?
Four lawmakers introduced companion language in both the Senate and House of Representatives.
The legislation received bipartisan support and is co-sponsored by Senator Chuck Grassley (R-Iowa), Senator Heidi Heitkamp (D-North Dakota), Congressmen Charles W. Boustany, Jr., M.D. (R-Louisiana)., and Congressman Mike Thompson, D-California.
Boustany and Thompson originally introduced the HRA legislation in the last Congressional session.
What is Proposed?
According to the legislative documents, the Small Business Healthcare Relief Act would provide an exception from certain group health plan requirements to allow small businesses to use pre-tax dollars to assist employees in the purchase of policies in the individual health insurance market, and for other out-of-pocket medical expenses.
In other words, the legislation would revive the use of stand-alone HRAs for small employers.
Where Does the HRA Legislation Currently Stand?
On June 22, 2015, the bills were introduced to the Senate and House. The Senate bill has been referred to the Committee on Finance. The House bill has been referred to the Committee on House Education and the Workforce.
When Will we Know the Outcome?
At the time of writing, the exact timeline is known. If the bills pass their respective committees they would then be considered by the Senate or House. If no action is taken, or if the bill does not pass committee, the bills would die at the end of the congressional session.
Why is HRA Legislation Being Introduced?
On September 13, 2013, Treasury issued guidance disallowing employers from using stand-alone HRAs to reimburse employees for healthcare-related expenses, stating these arrangements did not satisfy the Affordable Care Act’s minimum benefit and annual dollar cap requirements for health insurance plans offered by employers.
As a result, most employers that continue to offer stand-alone HRAs and Employer Payment Plans are subject to a $100 per day per employee penalty, totaling up to $36,500 over the course of the year.
According to a recent press release issued by Boustany, the HRA legislation aims to restores flexibility and choice into the marketplace by:
– Ensuring that small businesses and local municipalities with fewer than 50 employees are allowed to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses.
– Allowing employees to use HRA funds to purchase health coverage on the individual market, as well as for qualified out-of-pocket medical expenses if the employee has qualified health coverage.
– Protecting employers from being financially penalized for providing this cost-sharing option to employees.
Conclusion
Small employers with fewer than 50 FTE employees are not mandated to offer health insurance coverage to employees, and most small employers choose not to offer traditional coverage because of high costs or restrictive participation requirements. But this doesn’t tell the whole story. Most small employers would like to contribute to employees’ healthcare expenses but they need affordable, alternative ways to go about it.
Currently, small employers may use a Section 105 Healthcare Reimbursement Plan to reimburse employees’ health insurance premiums tax-free, however the plans are limited in nature to comply with the reforms.
If passed, the HRA legislation would reverse the current restrictions on HRAs and give businesses and their employees more affordable and flexible healthcare solutions.
