Bicameral Bills Restore HRAs for Small Businesses

July 22, 2015

pic-health-cost-blueAt the end of June, Congress introduced the Small Business Healthcare Relief Act that, if passed, will expand small-businesses access to offering Health Reimbursement Arrangements (HRAs) to employees with health insurance. HRAs are group health plans paid for by an employer to reimburse the medical expenses of its employees, their spouses, and dependents and are designed to give employees more choice and greater control over their health care coverage.

The bipartisan, bicameral legislation is sponsored by Reps. Charles Boustany (R-La.) and Mike Thompson (D-Calif.) in the House (H.R. 2911), and Sens. Charles Grassley (R-Iowa) and Heidi Heitkamp (D-N.D.) in the Senate (S. 1697). Both measures aim to help the small-business community offer affordable and competitive healthcare options and would exempt stand-alone HRAs offered by small businesses from group health plan rules.

On Sept. 13, 2013, the Internal Revenue Service issued guidance requiring stand-alone HRAs (and other employer healthcare arrangements) to comply with group health plan rules including annual limits rules and preventive care rules under the Patient Protection and Affordable Care Act (PPACA). Specifically, the guidance disallows employers from using stand-alone HRAs to reimburse employees for healthcare-related expenses, stating these arrangements did not satisfy the PPACAs minimum benefit and annual dollar cap requirements for health insurance plans offered by employers. As a result, employers that continue to offer HRAs would be subject to a $100 per day per employee penalty, totaling up to $36,500 over the course of the year.

After Rep. Boustany questioned Treasury Secretary Jack Lew on this issue in a House Ways and Means Committee hearing on Feb. 3, 2015, Treasury announced that it would delay enforcement of this guidance and resulting penalties until July 1, 2015.

These companion bills would restore 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.

This is an important step as Congress recognizes the need of small businesses to help employees’ afford health benefits by reimbursing them tax-free for both individual health insurance premiums and eligible out-of-pocket medical expenses. NSBA recently signed a coalition letter of support for H.R. 2911/S. 1697. Please click here to view the letter.