Treasury Delays Enforcement of Standalone Health Reimbursement Arrangement Ban

The Treasury Department said Wednesday that it would delay enforcement of an Affordable Care Act prohibition relating to standalone health reimbursement arrangements until July 1.

A standalone HRA is an employer-provided benefit that offers participants a spending account to reimburse them for qualified medical expenses. However, in light of the ACA’s ban against health plans with an annual dollar limit on essential benefits, standalone HRAs have been deemed impermissible.

Notice 2015-17, released Wednesday by the Treasury and the Internal Revenue Service, provides transition relief from the assessment of excise tax under Section 4980D of the Tax Code for small employers (in particular, employers who are not applicable large employers) who reimburse or pay a premium for an individual health insurance policy for an employee. Notice 2015-17 also addresses the treatment for federal tax and for market reform purposes of arrangements reimbursing premiums of 2 percent-shareholder employees of S corporations. Finally, Notice 2015-17 addresses application of the market reforms to certain employer arrangements to fund Medicare premium payments or to provide a TRICARE-related health reimbursement arrangement.

Business groups such as the National Association for the Self-Employed and the National Association of Home Builders applauded the move. “The announcement today by the Treasury Department that it has offered a short-term delay in the enforcement of a prohibition on Health Reimbursement Arrangements is welcome news for our community, but a long-term, legislative solution is still urgently needed,” said Katie Vlietstra, vice president for government relations and public affairs for the National Association for the Self-Employed. “America’s smallest employers need the stability of a permanent fix in order to continue to utilize this critical tool to help provide health care coverage to their employees.”

The National Association of Home Builders also issued a statement in support of the delay. “While today’s announcement by the Treasury Department is a step forward in helping small businesses to provide affordable health coverage to their employees, a short-term delay isn’t good enough,” said NAHB chairman Tom Woods, a home builder from Blue Springs, Mo. “Congressional action is needed to make this change permanent.”

NAHB CEO Jerry Howard discussed the issue of standalone HRAs in a meeting with Health and Human Services Secretary Sylvia Burwell on Feb. 5. In addition, NAHB is calling on Congress to advance legislation based on the bipartisan bill introduced by Reps. Charles Boustany, R-La., and Mike Thompson, D-Calif., in the waning days of the 113th Congress that would reverse the IRS regulation preventing small businesses from providing employees with standalone HRAs.

“We look forward to working with Reps. Boustany and Thompson to re-introduce legislation that will require the IRS to reverse its regulation preventing small businesses from providing standalone HRAs so that they can provide better health coverage to their employees at lower costs,” said Woods.  

The NASE also backs the legislation. “We support Congressmen Boustany and Thompson’s plans to re-introduce their bipartisan legislation focused on offering a permanent correction to this issue,” said Vlietstra. “This bipartisan legislation would order the IRS to reverse its regulation preventing small businesses from providing standalone HRAs so that they can support their employees and help them obtain affordable health care. Their legislation, combined with the momentum by Senate Republicans and Democrats to address this issue, will help millions of small business owners and should be passed by Congress as soon as possible. HRAs have long-been used to help small business owners provide some level of financial support for their employees. As an unintended consequence of the Affordable Care Act, the prohibition placed upon the use of HRAs is detrimental to small businesses and their employees across the country. Although we welcome this temporary, first step, we look forward to working with members on both sides of the aisle in Congress on a more permanent solution to this situation.”

Small business owners could have faced fines of up to $100 per day per employee for helping their employees purchase health insurance, according to Senator Chuck Grassley, R-Iowa, who proposed an amendment to fix this problem during a Senate Finance Committee mark-up last month. He said Wednesday that he is pursuing a permanent fix. 

“I’ve heard from several Iowa small business owners who feared they could be subject to thousands of dollars in penalties simply because they helped their employee pay for health insurance in 2014,” Grassley said in a statement. “For these and other affected businesses, the penalty relief is welcome news, but ultimately it only delays the inevitable. Small businesses are still prohibited from reimbursing their employees to purchase health insurance. It’s just a matter of when they have to come into compliance with the law. Small businesses and their employees still will be hurt going forward.  Congress has to fix this problem. This is the kind of problem that Obamacare created because it was poorly considered and rushed into law.”