As part of the 21st century Cures Act health reimbursement accounts(HRA) were restored for small businesses yesterday. Qualified small employer health reimbursement arrangements are now exempt from the Affordable Care Act group health plan requirements. Without the exemption the small businesses using a HRA would face severe penalties for having a non-compliant “group health plan”. The small business I work at terminated their health reimbursement account at the end of 2014. They replaced it with a monthly cash bonus.
Will Health Reimbursement Accounts Make A Comeback In 2017?
My boss indicated that he would like to offer a Health Reimbursement Account in 2017. Potentially this sounds like a good deal even if we have to give up our bonuses. Pretax money goes about 20% farther. The problem is in the details.
- What happens if you have a subsidized health insurance plan purchased through ACA exchanges? Zane Benefits implies that HRA payments will lower the premium tax credit. If the HRA amount is greater than the premium tax credit the employee will get a small benefit. Otherwise the only beneficiary is the government.
- What happens if an employee wants to self-insure? Zane Benefits implies that the employee needs an ACA compliant health insurance plan to claim qualified out-of-pocket medical expenses.
For those who are still interested in Health Reimbursement Accounts Zane Benefits posted an update on the legislation that has been introduced in Congress.
Two weeks ago, a group of legislators re-introduced the Small Business Healthcare Relief Act (S. 1697 and H.R. 2911). The legislation would allow small employers to once again use an HRA to reimburse employees for health insurance premiums and out-of-pocket medical expenses.
I was hopeful that Mr. Boustany of Louisiana would re-introduce the legislation and that my Representative, Brad Wenstrup, and my Senators, Rob Portman and Sherrod Brown, would step forward and co-sponsor the bill. This bill is a pretty simple, non-partisan health care reform. Although my representatives did not co-sponsor the bill I am pleased to see more sponsors and a Senate version of the bill. For more information about this bill you can read it at OpenCongress.org.
I finally got around to asking my senators and congressional representatives for their support of grandfathered health care plans and H.R.5860 – Small Business Healthcare Relief Act of 2014. This bill which is still in committee looks like it re-instates the Health Reimbursement Accounts for small businesses. The method I chose to ask for their support was to create a letter to representatives and let OpenCongress.org send it to them. The purpose of Open Congress is to:
OpenCongress makes it easy to follow legislation in Congress, from bill introduction to floor vote, as well as profiles for senators and representatives. You can use the site to learn more about issues you care about and connect with others who share similar views.
You can find my letter at the H.R. 5860 page.
My biggest financial problem for 2016 is keeping my grandfathered health insurance plan and paying for it with pre-tax money. In 2014 and prior years my health insurance was affordable since it was completely paid for with money from a Health Reimbursement Account(HRA) set up by my employer. Health insurance for healthy people was affordable and the HRA allowed my employer to pay for my health insurance with pre-tax money. Like most health care decisions before the Affordable Care Act it was a no-brainer. Then we passed the Affordable Care Act and everything became complicated and more expensive. In 2015 HRA’s become an inadvertent casualty of the Affordable Care Act. The next casualty I suspect will be my grandfathered health insurance plan. So I have three options:
- Convince someone in government to allow me to keep my grandfathered health insurance for another year.
- Not carry any health insurance.
- Get health insurance from the exchange.
No one should be surprised that health insurance from the exchange is not affordable and the only happy customers are those getting subsidies. According to the HealthCare.gov Exemptions Screener, I should be paying no more than 8% of my income on health insurance. For a couple earning $63,721(400% of the federal poverty level) this is only $425 a month. Last November I looked up the lowest cost bronze plan and it was going to cost me $979 a month or $11,748 a year. For a couple earning $63,721, health insurance would have taken 18.4% of their income. According to HealthCare.gov a couple like me would have to earn $146,850 a year before a health insurance policy from the exchange became “affordable”. Only the subsidized, wealthy, chronically ill, or naive would choose health insurance from the exchange.
With health insurance from the exchange costing $11,748 or more per year in 2016, self-insurance becomes a financially attractive option. As a healthy family who has gone without health insurance in the past(1998-2008) and who is exempt from the individual mandate because I cannot purchase “affordable health coverage” from the exchange, the biggest financial risk is a hospitalization that costs more than $12,000. If you have the discipline to have a large enough emergency fund to cover future health costs then this is an attractive, financially efficient second choice. $12,000 per year will buy a lot of health care especially if you are a savvy buyer. If I could get a catastrophic care policy priced at 4% of my income this would be my number one choice since it would be the best of both worlds, encouraging both healthy living and saving for medical expenses.
My first choice is to keep my existing health insurance and to convince the government to reinstate HRA’s for companies with less than 50 employees. My health insurance plan is almost as affordable as the subsidized insurance from the exchanges. As a person who has not filed an insurance claim in the last 15 years, I am by definition the perfect health insurance customer. It is probably in the best interest of the insurance industry to do whatever it takes to keep me as a loyal customer. Although my employer gave me a $500 a month bonus this year to pay for my health insurance I would be financially better off if that money went into a HRA. Taxing a health care bonus is just plain stupid. Once again it is in the best interest of the insurance industry to bring back the HRA before I get comfortable going without health insurance.
Christina Merhar wrote a nice post over at Zane Benefits updating the status of reviving HRAs in the current Congress. Although I would like to move on from the HRA subject, I cannot. The most cost effective health care plan available is my grandfathered health insurance plan from Aetna-AARP and I would like to pay those insurance premiums with pre-tax money like I did in 2014. Although my company tried to make do with a bad situation by giving me a raise, the bottom line is that I will have un-reimbursed health insurance costs in 2015 because of the payroll taxes on the raise. For a healthy family that last made an insurance claim in the 1990s, this is unacceptable. Here is my reason to revive HRAs.
Yes, I think they should revive HRAs and allow them to pay for grandfathered health insurance plans. I will encourage my congressman to support the bill as one of those bipartisan changes to the Affordable Care Act that makes it less evil. I will go a step farther. I want to keep my existing plan and HRA until the Affordable Care Act reforms actually result in falling costs and more cost effective plans being offered via the exchanges. This is what the President promised and I think we should hold him to his promise.
Here is part of the press release from Representative Boustany(R-LA) web site in which he says, “ObamaCare Delay Not Permanent Solution.”
Boustany questions Treasury Secretary Lew on the Administration’s policy on HRA’s.
Last year Representative Boustany(R-LA) and Representative Mike Thompson (D-CA) introduced the Small Business Healthcare Relief Act last year that permanently reverses this guidance, giving employers and employees more flexibility in choosing coverage. This legislation is supported by the United States Chamber of Commerce, the National Federation of Independent Business (NFIB), the National Association of Manufacturers (NAM), the Retail Industry Leaders Association (RILA), the National Association of Homebuilders (NAHB), the National Association for the Self-Employed, and the Council for Affordable Health Coverage (CAHC).
I was reading a post over at Hot Air, Administration delays another Obamacare rule, this time for small businesses, when I realized there is still a lot of confusion over what HRAs are and how they pay for health care. HRAs were adopted by small businesses because the individual health insurance market had better prices than the group market. Small businesses really liked the idea that the employee could get the best bang for their health care dollar with a portable plan available in the individual insurance market while the business could take a health care tax deduction just like the big companies. As an example my 2014 HRA was funded at $500 per month. The HRA funding was adequate enough to reimburse me for my health insurance premiums, my out of pocket health care expenses, and to roll $3,000 over to 2015. I think everyone would agree that the ACA never intended to change HRAs. Due to misguided rulings by the IRS in 2014 we find that many HRAs are not in compliance with the ACA and small businesses are royally pissed! Small businesses who were nice enough to offer HRAs were hoping they can redo their HRA before they get penalized. As a last resort they could choose the safe alternative that is both bad for the company and the employee. As an example since my HRA is no longer being offered as a benefit, my company opted to give me a $500 per month raise. When you remove the payroll taxes from the raise, it is not enough to pay my 2015 health insurance premium. Both the company and I are paying more. The only beneficiary of this scheme is the government who is collecting higher payroll taxes. So it is not surprising that the IRS has decided to show leniency to the small businesses they just screwed. It was the least they could do! Last year H.R.5860 – Small Business Healthcare Relief Act of 2014 was introduced with bipartisan support to try and overcome the hardships the ACA inadvertently created for small businesses. Maybe it will pass in 2015 and small businesses can go back to growing their businesses.
Yesterday my boss told me that our existing HRA plan which I was told would terminate on December 15, 2014 can pay bills in 2015 with funds that were committed in 2014. I guess that since it has funds we can keep on going until it runs out. This is short term solution since the company cannot add additional funds to the HRA in 2015. My boss is hoping that H.R.5860 – Small Business Healthcare Relief Act of 2014 will pass and allow companies to catch up on 2015 funding and payments.
For those of you who still feel that Health Reimbursement Accounts is a great way to encourage small businesses to pay for your health insurance then it is time to contact your Representative about supporting H.R.5860 – Small Business Healthcare Relief Act of 2014. Congressman Charles W. Boustany, Jr., M.D., (R-LA) and Congressman Mike Thompson (D-CA) have introduced a new bill to restore health reimbursement accounts for small businesses. Here is my summary of the bill:
Amounts paid by an eligible small employer on behalf of an employee of the employer for premiums for a qualified health plan shall be treated as employer-provided coverage for medical expenses under an accident or health plan and shall not be considered a group health plan for purposes of section 9815.
The bill sounds like it will restore HRAs for small businesses by exempting small business HRAs from the group plan rules. Applying group plan rules to HRAs was one of those Affordable Care Act idiosyncrasies that drives me nuts. Why do our Affordable Care Act bureaucrats keep making decisions that makes health care less affordable? Whose side are they on? The only question I have is whether my grandfathered health insurance plan is a qualified health plan under this law. Since my grandfathered health insurance plan costs 52% of the lowest cost bronze plan and has a much smaller deductible, this is a big deal.
Here is the link to the blog post at Zane Benefits.
Here is the link to the press release from U.S. Rep. Mike Thompson’s web site.
Here is the link to the bill’s text at congress.gov.
Last week my boss informed me that our Health Reimbursement Account(HRA) would be phased out at the end of 2014 and he said that the most recent interpretation of Affordable Care Act by the Department of Labor had effectively outlawed the HRA. He and our HRA administrator discussed the options and do not have a clue what they were going to replace it with in December 2014. As of right now we do not have a company supported health care plan for 2015. Our present plan is a stand-alone health reimbursement arrangement in which I am reimbursed for paying my health insurance premium. It is a very simple, portable health care plan that worked really well before the Affordable Care Act. Since the company is small enough to be exempt from most of the Affordable Care Act I was hopeful that I could continue the HRA in the future. It is truly ironic that the people who voted for the Affordable Care Act seem to be the last people to figure out that they have condemned some of us to health care hell. Abandon hope all ye who enter here.
The sad part is that the demise of the HRA did not have to happen this way. As an example the Public Health Services (PHS) Act Section 2711 requires a health insurance issuer to not establish lifetime limits on the dollar value of benefits for any participant or beneficiary. I can see how this requirement should be applied to my insurance company, Aetna, so I am not surprised that my insurance company has already complied. This was one of the positive contributions of the Affordable Care Act that had bipartisan support. I do not understand why our bureaucrats are applying this restriction to a HRA used to purchase a health insurance policy that complies with the requirement. The Department of Labor has grudging accepted that a flexible spending plan can be used to pay health insurance premiums if it provides preventative care as required by PHS Act Section 2713 at 100% without cost-sharing, too. Huh? Since my insurance plan already complies with both of these requirements, isn’t this redundant? Zane Benefits thinks that a new plan they call a limited Healthcare Reimbursement Plan (HRP) can be constructed to comply with the Department of Labor requirements. All of this sounds so iffy I have to ask the question why did the Department of Labor decide to screw with health insurance that was working? It sure looks like it is deliberate malfeasance. Here are two alternatives my company is probably looking at for 2015.
- In an effort to avoid unnecessary employee turnover they might opt to give everyone a $5,000 raise and tell us to get our health insurance from the exchange. $5,000 was the amount they contributed to the HRA last year.
- As a company with less than 50 employees it is not obligated to provide me with health insurance. They might opt to drop the HRA with no change in employee compensation.
In this strange as hell health care world the “raise” option is actually less attractive because the subsidy is greater than what the raise provides after you take out the taxes. A raise will likely push my income above the 400% FPL so I will not receive a subsidy. Since I do not qualify for a subsidy and my monthly premiums will go from about $407 to over $886 per month(2014 rates) for the lowest cost bronze plan, my out of pocket costs will zoom from zero to about $6,000 a year even when I account for the raise. The second option qualifies me for a subsidy and my total out of pocket costs is just $4,800. In 2015 I have the option to pay an additional $6,000 or $4,800 for heath insurance I paid zero for in 2013. Either way I lose. The only way to minimize my loses is if I can keep the HRA just the way it was.
So for a person who went without health insurance from 1998 to 2008 it looks like there is a very good chance that my wife and I will roll the dice and go without health insurance in 2015. Until the Affordable Care Act was passed we were part of the solution. We had health insurance and we were healthy. In fact we were the perfect health insurance customer. We never made a claim. Now we are part of the problem in this strange, strange health care hell.
George asked me a bunch of questions last weekend about my HRA. One of the areas I had to do some research on was Section 105 HRAs. I was trying to be helpful but I am not a benefit professional. Fortunately Christina Merhar at Zane Benefits wrote a nice article today on the subject, Can a Business Pay for Employees’ Individual Insurance Plans?.
Yes. Done correctly, a business is allowed to use a Health Reimbursement Arrangement, also called a Health Reimbursement Account or HRA, to contribute tax-free to employees’ individual health insurance plans. This type of medical reimbursement is similar to the way a business can contribute to group health insurance premiums on a tax-free basis.
HRA for Premium Reimbursement
With a Section 105 HRA, any business can contribute to employees’ individual health insurance plans tax-free. An HRA is a tax-advantaged plan that employees can use to receive reimbursement for qualified medical expenses, including individual health insurance plans. HRAs are 100% funded by employers. This type of arrangement, where the HRA is not linked to a group plan, is often called a Stand-Alone HRA.