Exempting HRAs from ACA limits would expand coverage for employees, CPAs say


The American Institute of CPAs (AICPA) has written to top tax lawmakers in Congress urging them to enact legislation to exempt certain types of health reimbursement arrangements (HRAs) from group health insurance requirements so that employers can offer health insurance coverage to more employees. An HRA is an employer-funded arrangement that reimburses an employee for medical care expenses, including premiums for health coverage, and the reimbursements can be made on behalf of the employee’s spouse and dependents. HRAs fall under the rubric of employer payment plans, which are formal or informal arrangements under which the sole benefit to the employee is direct payment or reimbursement by the employer of the employee’s premiums for health coverage.

As explained on the AICPA website, the coverage is generally obtained by the employee through the individual market, a spouse’s employer, through Medicare, or a former employer under the requirements of the Consolidated Omnibus Budget Reconciliation Act (COBRA). Additionally, similar arrangements are provided to partners and more than 2 percent shareholders of S corporations where the partnership or S corporation pays for or reimburses the partner or shareholder for health insurance premiums.

Employer payment plans are relatively common, and, historically, they have been used by employers to reimburse employees, their spouses and their dependent children, for health insurance premiums, or to pay their health insurance premiums directly to the insurer on behalf of the employee.

ACA’s prohibition on annual and lifetime limits. In 2013, the Department of the Treasury, the Internal Revenue Service and the Department of Labor issued guidance clarifying the impact of the Patient Protection and Affordable Care Act’s (ACA’s) market reforms on HRAs. Employer payment plans, including HRAs, and similar arrangements for non-employees, are considered group health plans subject to the market reform rules of the ACA. Among other restrictions, the market reform rules prohibit annual or lifetime limitations on benefits and require coverage of preventative services. Since employer payment plans and similar arrangements for non-employees routinely provide for maximum dollar limitations on benefits, they violate the market reform rules.

In 2015, the Treasury and IRS issued Notice 2015-17 to provide transition relief until June 30, 2015 from the Internal Revenue Code section 4980D excise tax, including relief to small employers offering employer payment plans and until further guidance is issued for S corporations offering similar arrangements to greater than 2 percent shareholder-employees. The AICPA believes that this relief is too narrow.

Employers in violation of the rules are subject to steep penalties. The section 4980D nondeductible excise tax is $100 per-employee, per-day, (up to $36,500 annually) for each individual reimbursed under one of these arrangements. The penalty is self-reported on IRS Form 8928, Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code.

Make employer payment plans available to all businesses. Troy K. Lewis, chair of the AICPA Tax Executive Committee, wrote in the June 17 letter to the chairmen and ranking members of the House Ways and Means Committee and Senate Finance Committee, “The AICPA urges Congress to enact legislation which would enable all businesses to continue the practice of providing employer payment plans to their employees, and similar arrangements to partners, more than 2 percent shareholder-employees of S corporations and sole proprietors.”

Lewis added, “The AICPA believes the arrangements support the objective of Congress by expanding affordable health care coverage to employees, partners, more than two-percent S corporation shareholders and sole proprietors by subsidizing the cost of their health coverage. However, in order to avoid the imposition of the excise tax, the amount of which can be catastrophic, many employers have eliminated these arrangements. This result is contrary to the objective of the ACA to expand affordable health care coverage to all Americans.”

SOURCE: AICPA press release, June 18, 2015.

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