Exempt Small Co. from HRA Penalties?

A bipartisan group of lawmakers recently introduced legislation in both chambers, the Small Business Healthcare Relief Bill, that would roll back an IRS rule imposing fines on small businesses providing Health Reimbursement Arrangements (HRAs). The legislation was introduced by Sens. Charles E. Grassley, R-Iowa, and Heidi Heitkamp, D-N.D., and House Ways and Means member Charles Boustany, R-La., and Rep. Mike Thompson, D-Calif.

The legislation would ensure that small businesses with fewer than 50 employees are allowed to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses. It would also protect employers from being financially penalized for providing HRAs. In addition, the measure would allow employees to use HRA funds to purchase health coverage on the individual market, as well as for qualified out-of-pocket medical expenses if the employee has qualified health coverage.


On September 13, 2013, the Treasury issued guidance disallowing employers’ use of stand-alone HRAs to reimburse employees for healthcare-related expenses, stating these arrangements did not satisfy the Patient Protection and Affordable Care Act’s minimum benefit and annual dollar cap requirements for health insurance plans offered by employers. As a result, employers that continued to offer HRAs would be subject to a $100-per-day, per-employee penalty, up to $36,500 for the year.

Boustany questioned Treasury Secretary Jack Lew on the issue in a Ways and Means hearing on February 3. Subsequently, the Treasury announced on February 18 that it would delay enforcement of this guidance and resulting penalties until July 1, 2015.

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