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Small Business Employee Benefits and HR Blog

Health Care Reform and Defined Contribution Q&A: Part 1

March 22, 2013
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The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010 and over the last three years we've aimed to provide a wealth of information about how health care reform impacts defined contributionHealth Reimbursement Arrangements (HRAs), employers, insurance professionals, CPAs, and employees.

Health Care Reform

Over the next few days, we'll summarize the most common questions we receive about health care reform. Part 1 will focus on the new regulations affecting HRAs and employers. Part 2 will focus on trends with the health insurance industry, including health insurance exchanges.

Can HRAs Still Reimburse Health Insurance Premiums?

Yes.  HRAs can still reimburse for individual health insurance premiums.  

How? The types of medical expenses that can be reimbursed through an HRA are governed by IRC Section 105(b)IRC Section 213(d) and IRS Publication 969. This includes reimbursement of individual health insurance premiums. Nothing in these codes or publications has changed.

Why the confusion? On January 24th, 2013, the Department of Labor released a new set of FAQs clarifying which type of HRAs will be considered "integrated" HRAs (integrated with a group health plan). PHS Act Section 2711 does not affect an HRA's ability (under Section 105) to reimburse health insurance premiums.

For a more detailed explanation see:

Are HRAs Affected by PHS Act Section 2711? 

Yes.  To be compliant with PHS Act Section 2711, HRAs will need to fall into one of these five types of HRA plans to be exempt from the annual limit requirements:

  1. "Integrated" HRAs

  2. "Flexible Spending Arrangement" HRAs

  3. "Excluded" HRAs

  4. "Excepted" HRAs

  5. "Retiree" HRAs

Most stand-alone HRAs will fall under a "Flexible Spending Arrangement" (#2), and only minor plan design changes will need to be made to qualify.

Is my Company Subject to Penalties in 2014?

It depends on how many full-time equivalent (FTE) employees you have.

  • 50 FTE employees or more? You will be subject to the employer penalty if you choose not to offer “qualified” and “affordable” health insurance to employees (starting in 2014).

  • Less than 50 FTE employees? You will not be subject to the employer penalty.

See:  Employer Mandate - What Happens If a Company Does NOT Offer Health Insurance

Where will Employees Obtain Coverage if I Do Not Offer Health Insurance?

Beginning in 2014, massive tax subsidies will be available to help individuals buy individual health insurance coverage through the new state-based public exchanges

If an employee’s employer doesn’t offer a “qualified” and “affordable” company-sponsored group health plan, the employee gets a federal subsidy automatically applied to the cost of their individual health insurance policy. Large employers (50 FTE or more) are charged $3,000 per year for each employee who receives the subsidy, up to a maximum of $2,000 per year for all employees. Employers with less than 50 employees are not charged anything if their employees receive the federal subsidy. 

Stay tuned for Part 2. We'll focus on the private and public exchanges, trends in health insurance and navigators.  And, let us know in the comments below what Health Care Reform questions you'd like us to answer.

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