Bipartisan HRA Legislation Introduced

Bipartisan legislation introduced in both the House and Senate would restore the use of health reimbursement arrangements (HRAs) by small employers.

The Small Business Healthcare Relief Act rolls back existing Treasury Department guidance issued under the authority of the Affordable Care Act prohibiting the use of HRAs. The legislation was introduced in the Senate (S. 1697) by U.S. Senators Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND) and in the House (H.R. 2911) by Congressmen Charles W. Boustany, Jr., MD, (R-LA) and Mike Thompson (D-CA). Boustany and Thompson introduced the legislation last Congress.

ACA Impact

On Sept. 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, employers that continue to offer HRAs would be subject to a $100 per day per employee penalty.

According to a press release from the bill’s sponsors, after Boustany questioned Treasury Secretary Jack Lew on this issue in a House Ways & Means Committee hearing on Feb. 3, 2015, Treasury announced on Feb. 18 that it would delay enforcement of this guidance and resulting penalties until July 1, 2015.

The bill’s sponsors note that many small businesses — those too small to be required by the employer mandate to provide coverage — may not be able to provide coverage in the small group market due to cost or complexity issues but do want to provide assistance to their employees for their health costs in the most tax-efficient manner. According to an issue backgrounder, many of these small businesses relied, or planned to rely, on this mechanism to provide assistance to their employees for the purchase of health insurance and qualified out-of-pocket health expenses.

Legislative Remedy

The bill’s sponsors say the legislation:

  • Ensures 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
  • Allows 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
  • Protects employers from being financially penalized for providing this cost-sharing option to employees

An issue backgrounder for the legislation is available here.

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