Lawmakers introduce bill to roll back tax penalties on HRAs

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A group of lawmakers has introduced legislation to roll back guidance from the Treasury Department that prohibits employers from using stand-alone health reimbursement arrangements to reimburse employees for health care-related expenses.

Senators Chuck Grassley, R-Iowa, and Heidi Heitkamp, D-N.D., and Congressmen Charles W. Boustany, Jr., M.D., R-La., and Mike Thompson, D-Calif., recently introduced bipartisan companion language in the House (H.R. 2911) and Senate (S. 1697) known as the Small Business Healthcare Relief Act to roll back existing Treasury Department guidance issued under the authority of the Affordable Care Act prohibiting the use of health reimbursement arrangements. Boustany and Thompson originally introduced the legislation in the last Congress.

The Treasury issued guidance in September 2013 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, 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 Boustany questioned Secretary Jack Lew on this issue in a House Ways and Means Committee hearing on Feb. 3, 2015, the Treasury announced on February 18 that it would delay enforcement of this guidance and resulting penalties until July 1, 2015.

Grassley, Heitkamp, Boustany, and Thompson’s legislation aims to 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 health care expenses. The bill would also allow 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. In addition, the bill would protect employers from being financially penalized for providing this cost-sharing option to employees

“I’ve heard from farmers, small business owners and accountants who are worried about getting hit with a penalty for something they’ve done for a long time without any controversy,” Grassley said in a statement. “It doesn’t make sense to tell small employers they can’t help their employees get health insurance. Why disrupt something that worked? Our bill puts this provision back to what it was so farmers and small businesses can use this option as they see fit.”

Supporters of the legislation include the U.S. Chamber of Commerce, the National Association for Towns and Townships, the American Farm Bureau Federation, the National Association of Manufacturers, the National Association of Home Builders, the National Federation of Business, the Small Business Majority, the National Association for the Self Employed, the Coalition for Affordable Health Coverage, the Retail Industry Leaders Association, and the National Retail Federation.

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