Congress passes small business HRA bill

The Senate on December 6 passed the 21st Century Cures Bill (HR 34). The bill passed in the House on November 30 (see PAYROLL MANAGEMENT GUIDE Report Letter 1482/2483, dated December 6, 2016.) The President is expected to sign the bill. Among other things, the bill would allow certain small businesses to use qualified Health Reimbursement Accounts (HRAs) without Patient Protection Affordable Care Act (ACA) (P.L. 111-148)-related penalties. Certain limits to the accounts would apply, however, such as an annual cap of $4,950 per year ($10,000 for families). Further, the employee must provide proof of minimum essential coverage. And the employer must not be an applicable large employer as defined under the ACA, nor offer a group health plan to any of its employees.

Traditionally, many small businesses provided a health benefit to their employees through an HRA. In Rev. Rul. 61-146, 1961-2 CB 25, the IRS determined that if an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income. The exclusion also applies if the employer pays the premiums directly to the insurer.

After Congress passed the ACA, the IRS released Notice 2013-54, IRB 2013-40, 287, which described these arrangements as employer payment plans. Therefore, they are considered to be group health plans subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with the
ACA’s market reforms triggers excise taxes under Code Sec. 4980D.

The excise tax reaches $100 per affected individual per day. In Notice 2015-17, IRB 2015-14, 845, the IRS provided transition relief from the penalties but the relief expired after June 30, 2015.

The HRA requirements for qualified small businesses within the bill would apply to years beginning after December 31, 2016. Further, transition relief provides that the relief under Notice 2015-17 will be treated as applying to any plan year beginning on or before December 31, 2016. President Obama has said that he intends to sign the bill as soon as it reaches his desk.

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