The availability of standalone health care reimbursement arrangements (HRAs) depends on the circumstances under which an HRA is offered, and whether or not new legislation can get through Congress and be signed by the president.
As it stands, traditional standalone HRAs have been eliminated as a result of a provision in the Affordable Care Act (ACA) that forbids employers from reimbursing employees for expenses related to health care. There are a few exceptions that keep standalone HRAs alive, but on a very limited basis. Small businesses and their employees have been hit the hardest by this change, but legislation has been introduced seeking to restore stand-alone HRAs for small businesses.
Where HRAs Are Not Allowed
Generally, employers are no longer allowed to offer standalone HRAs as vehicles to reimburse employees for expenses related to health care. The ACA deems HRAs to be health care coverage that does not satisfy its minimum benefit and annual dollar cap requirements. So, the only way an employer can offer an HRA is if it is integrated with a qualified employer-sponsored health insurance plan. An integrated HRA can only reimburse employees for co-payments, deductibles and premiums under a non-HRA insurance plan. If an employer continues to offer a standalone HRA without integrating it with an approved plan, it is fined $100 per day, per employee.
Small businesses have been especially disadvantaged under the ACA due to the increasing costs of providing health insurance as a benefit. So, many small businesses have turned to HRAs to provide some assistance to their employees. It is now illegal for a small business to reimburse employees with pretax dollars for the purchase of individual health insurance policies. They would be subject to the same fines as larger employers.
Where Standalone HRAs Are Allowed
The only standalone HRA available as of November 2015 is offered under the excepted benefits provision of the ACA. Under certain conditions, retirees can use HRAs to cover most benefits related to health care. A sole proprietor with only one employee can offer a standalone HRA without having to offer a health insurance plan. Everyone else can only use an HRA to cover limited benefits, such as vision and dental care, whether it is standalone or integrated with a group plan.
HRAs for Small Businesses
Small businesses with fewer than 50 full-time employees are not required under the ACA to provide health insurance coverage; because of its high cost, most do not. HRAs had been an affordable alternative for small businesses to provide some sort of health care benefit. As of July 1, 2015, small businesses have been banned from offering them.
In June 2015, House bill H.R. 2911 was introduced to restore HRAs for small businesses, which would allow employees to receive pretax dollars to purchase health coverage on the individual market and pay for qualified out-of-pocket medical expenses if the employee has already qualified health coverage. The bill, called the Small Business Healthcare Relief Act, has yet to be presented for a vote, but it does have bipartisan support and is expected to pass both houses. The issue is whether President Obama will sign the bill, as he may view it as another encroachment on the ACA.
Except for retirees and sole proprietors, the standalone HRA, as it has been known, is gone. For large employers, the provisions in the ACA covering HRAs are set in stone, allowing HRAs to be offered only if there are integrated with a group plan. There remains a possibility that small businesses may be able to offer HRAs as sole health care benefits if the legislation supporting it makes it to the president's desk. However, it’s not clear how the president will respond.