Businesses of all sizes are looking to stand-alone health reimbursement arrangements (HRAs) to control benefits costs while keeping employee morale and retention up. Health reform introduces new regulations, and new opportunities, for small business health insurance options. Likewise, many businesses and insurance professionals have questions about how health reform impacts small business health insurance, including health reimbursement arrangements.
We've addressed four of the most common questions ("myths") about health reform and health reimbursement arrangements.
Health Reform Myth #1: Stand-Alone Health Reimbursement Arrangements are Going Away in 2014
Reality: Based on the current regulations stand-alone health reimbursement arrangements are not going away in 2014. One key question in regards to health reimbursement arrangements has been around the annual limit prohibitions.
To be compliant with the annual limit prohibitions as outlined in PHS Section 2711, the health reimbursement arrangement (HRA) needs be one of the 5 types of HRAs that are excluded from the annual limits provision. Based on the existing regulations, the following HRA plans will avoid the annual limit requirements of Section 2711 and are health reform compliant:
"Flexible Spending Arrangement" HRAs
What does this mean for existing health reimbursement arrangements? If the health reimbursement arrangement does not fall into one of the above categories, the business will need to modify their HRA plan design to avoid falling out of compliance with PHS Section 2711.
For more information on annual limits and definitions of these five types of HRAs see: New Guidance on Integrated Health Reimbursement Arrangements.
Health Reform Myth #2: Health Reimbursement Arrangements Won't Be Allowed to Reimburse Premiums Post-2014
Reality: 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 with health reform.
Much of the confusion around this stems from the Department of Labor FAQs released on January 24th, 2013 about integrated HRAs (HRAs linked with a group health insurance plan). Nothing with health reform regulations, including PHS Act Section 2711 discussed above, changes an HRA's ability (under Section 105) to reimburse health insurance premiums.
Health Reform Myth #3: If an Employer Has 50+ FTE Employees They Have to Offer Health Insurance
Reality: It's true that beginning in 2014 all employers with over 50 FTE employees must offer "minimum essential coverage" that is "affordable" to their employees. These "applicable large employers" who fail to offer coverage will be required to pay a "penalty" on their tax return. However, the penalty is just that -- a tax a penalty.
Experts predict that even with the tax penalty many businesses (with over 50 FTE employees) will drop their group health insurance, provide a stand-alone health reimbursement arrangement, and employees will purchase individual policies through a broker or the health insurance exchanges. The business will absorb the tax penalty into their overall cost of providing health benefits.
For more information see: The Health Reform Employer Penalty: Should I Pay or Play?
Health Reform Myth #4: Health Reimbursement Arrangements Satisfy the Employer Mandate
Reality: Offering a stand-alone health reimbursement arrangement does not satisfy health reform's definition of providing "essential minimum coverage." So if a business offers a stand-alone health reimbursement arrangement (an HRA not linked to a group health insurance plan), and they have over 50 FTE employees, they are likely subject to pay the employer mandate penalty.
What health reform myths have you run into? What questions do you have about health reform and small business health insurance? Let us know if the comments.