Featured Health Business Daily Story, July 28, 2016

Letting Small Firms Fund HRAs Could Boost Exchange Enrollment

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July 2016Volume 6Issue 7

A bill that passed a House committee vote last month would allow small employers to offer tax-free money to workers through a health reimbursement arrangement (HRA) that could be used to buy individual coverage on a public exchange. That, industry observers tell HEX, has the potential to boost enrollment on the public exchanges and improve the risk pool.

The House Ways and Means Committee approved The Small Business Health Care Relief Act of 2016 (HR 5447) by a voice vote on June 21. It’s expected that the Senate will try to pass a companion bill (SB 3060) by “unanimous consent,” which will require agreement from all 100 senators. But even if the Senate approves the measure, it might not win support from the Obama administration.

Christopher Condeluci, a principal at CC Law & Policy in Washington, D.C., says the legislation could remain in the Senate until the end of 2016, ultimately getting included in an end-of-year legislative package. He gives it a 50-50 shot at becoming law by the end of the year. If that happens, it likely would become effective on Jan. 1, 2018, he says. Chantel Sheaks, an employee benefits attorney and director at PwC, anticipates that some Democrats could oppose the bill if it’s seen as being contrary to the administration.

The bipartisan legislation — sponsored by Reps. Charles Boustany, Jr., M.D. (R-La.) and Mike Thompson (D-Calif.) — would allow employers with fewer than 50 full-time equivalents to create tax-free HRAs for workers. Under existing rules, employers that don’t offer group health coverage but reimburse their employees for individual insurance premiums could be liable for an excise tax of $100 per day, per reimbursed employee (or $36,500 per employee, per year), according to the law firm Pullman & Comley, LLC.

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Several business trade groups, including The U.S. Chamber of Commerce, the National Federation of Independent Businesses, the Small Business Council of America and the Council for Affordable Health Coverage, support the legislation.

Unlike health savings accounts (HSAs), which are owned by the employee and can be funded with employee and/or employer money, HRAs are notional accounts that work more like an IOU. Although unused HRA balances typically roll over each year, the money exists only on paper and reverts back to the employer if an employee leaves or is terminated.

In an email to HEX, Rep. Thompson said the process of passing the bill was “a prime example of what we should be doing in Congress — working across party lines to make health coverage available to our constituents.” Allowing small employers to fund HRAs “not only arms our small business owners with a competitive advantage to recruit and retain employees, but we also help ensure that hard-working Americans can receive quality, affordable coverage,” he wrote.

Lawmakers still have a few kinks to work out if they want to coordinate the new benefit with the premium tax credit. The bill requires only annual reporting. But small employers will need to report month-by-month HRA “contribution” data, rather than just annual data because eligibility for the premium tax credit (Code Section 36B) is determined monthly. For example, an employee who has coverage for 12 coverage months is potentially eligible for the premium tax credit for all 12 months. An employee with fewer than 12 coverage months might only be eligible for the tax credit for those months. Some employers front-load their HRA “contributions” so that a person is entitled to the full amount on the first day of the coverage year. But most employers make contributions over the number of payroll periods in the year.

Some Employers Can’t Sustain Coverage

Sheaks says many of her small-group clients have asked about giving money to employees to cover, or partially cover, premiums for individual coverage. “There are a lot of small employers that can’t sustain a group health plan. They want to help their employees, but there is too much of an administrative burden involved in offering group health coverage,” she tells HEX. “This bill has the potential of really expanding the marketplaces and decreasing the number of [small-group] plans. I could see it potentially expanding this beyond small employers.”

John Hickman, an employee benefits attorney with the law firm Alston & Bird, agrees the bill, if enacted, would be welcome news for small employers. “Hopefully it will receive the broad bipartisan support it deserves,” he says. “The requirement to use employer funds through an HRA helps employees, and to some extent preserves the premium tax credit subsidy,” he adds.

In the early days of the ACA, there was concern that employers would drop group coverage and send employees to the public exchanges. Since January 2013, HHS, along with the Depts. of Treasury and Labor, has issued six pieces of guidance — which have been codified in regulations — emphasizing that employers will be subject to an excise tax penalty of $100 per day per violation if they provide a tax-free contribution to employees to purchase an individual market plan, explains Condeluci. HR 5447 would undo existing guidance for small employers.

The federal agencies determined that tax-free dollars provided by an employer for the purchase of an individual insurance policy would be considered a “group health plan” subject to HIPAA. Sheaks says that logic is invalid and contends the agencies never had the authority to bar employers from offsetting the cost of individual policies with untaxed dollars in the first place.

Hickman notes that the HRA bill addresses one of the primary concerns of the agencies when they issued prior guidance “by very clearly making employer funding and premium tax credit subsidy eligibility mutually exclusive. The influx of additional good-risk coverage into the individual market from this bill should help shore up some of the adverse selection issues that are being experienced in the current marketplace,” he explains. Final legislation, he suggests, should allow some level of salary reduction funding while allowing employer funding as well.

“But can you convince small employers to do this? So many of them have had this idea and are surprised and disappointed to learn it’s not allowed,” Sheaks says. “If the legislation is enacted, there will need to be significant education for employers.”

Read the text of HR 5447 at http://tinyurl.com/h3y57f3.

© 2016 by Atlantic Information Services, Inc. All Rights Reserved.

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