House Passes Small Business Healthcare Tax Relief Bill

The House passed the bipartisan Small Business Health Care Relief Bill (HR 5447) on June 21 by voice vote. The House Ways and Means Committee had approved the bill on June 15 (TAXDAY, 2016/06/16, C.1). The measure, sponsored by Reps. Charles Boustany, R-La., and Mike Thompson, D-Calif., now heads to the Senate.

According to Boustany, the bill would implement the following measures:

– Small businesses and local municipalities with fewer than 50 employees will be allowed to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses;

– Employees will be allowed to use Health Reimbursement Arrangement (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; and

– Employers will be protected from financial penalties for providing this cost-sharing option to employees.

Background

The IRS issued Notice 2013-54, I.R.B. 2013-40, 287, which generally prohibited the use of HRAs for purchasing health insurance on the individual market because these arrangements do not meet the Patient Protection and Affordable Care Act’s (PPACA’s) (P.L. 111-148) minimum benefit and annual dollar cap requirements for health insurance plans offered by employers. “Under this guidance, employers who continue to offer HRAs would be subject to a $100 per day, per employee penalty totaling up to $36,500 per year,” Boustany noted.

“The Small Business Healthcare Relief Bill is a common-sense, bipartisan solution ensuring our small businesses aren’t penalized for trying to do the right thing”, Boustany said. “HRAs are an affordable solution for both employees and employers to combat the escalating cost of health insurance,” he added.

JCT

According to the Joint Committee on Taxation’s (JCT) report on the bill (JCX-47-16), “IRS guidance holds that employer payment plans generally fail to meet certain group health plan requirements.” Additionally, an HRA cannot meet those requirements unless it is offered in conjunction with employer-sponsored coverage, the JCT report noted. “An employer may be subject to an excise tax if it provides an employer payment plan or a stand-alone HRA,” it added.

Business Community Support

The U.S. Chamber of Commerce sent a letter in support of HR 5447 to Boustany and Thompson. “This bipartisan bill would restore the ability of small businesses to offer stand-alone HRAs to their employees without being penalized,” the organization noted. “Since many small employers do not have human resource departments or benefits specialists, this bill would provide them with the necessary flexibility to help their employees pay for health care,” it added.

The National Association of Homebuilders (NAHB) also voiced its support for the bipartisan measure. This legislation “would allow home building firms and other small businesses to provide Health Reimbursement Arrangements (HRAs), which let employers contribute something to their employee health costs,” NAHB Second Vice Chairman Randy Noel said. “HRAs allow small businesses to offer pre-tax dollars to insured employees to help pay premiums and/or other out-of-pocket costs associated with medical care and services”, he added.

Senate

Sens. Charles E. Grassley, R-Iowa, and Heidi Heitkamp, D-N.D., recently released an updated version of their bill that also focuses on allowing small businesses, through HRAs, to help employees purchase health coverage (TAXDAY, 2016/06/16, C.1). Their version of the Small Business Health Care Relief Bill (Sen 3060) “would allow small businesses to reimburse their employees on a pre-tax basis for the purchase of health insurance on the individual market,” Grassley said in a statement.

By Jessica Jeane, Wolters Kluwer News Staff

CBO Cost Estimate on HR 5447, the Small Business Health Care Relief Act of 2016

Ways and Means Press Release: Levin Floor Statement on HR 5447

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