HR 5447 is the Small Business Health Care Relief Act of 2016. It passed the House earlier this month, and is with the Senate now. This bill would allow employers to contribute to their employees’ individual health insurance premiums, up to a maximum of $5,130 for a single employee, or $10,260 if the reimbursement also includes an employee’s family members.
When we first got into the insurance industry in Colorado in 2002, the state did not allow employers to reimburse employees for individual health insurance premiums. Then in 2011, Colorado passed Senate Bill 19, which reversed course on that issue, and allowed employers to set up Health Reimbursement Arrangemen ts for their employees (although there was a caveat that employers could not reimburse for individual market coverage within 12 months of dropping an employer-sponsored group health insurance plan; this was put in place to prevent employers from cancelling group coverage, sending all of their healthy employees to the individual market, and flooding CoverColorado—the state’s pre-ACA high risk pool—with sick employees).
Then the ACA came along, and changed everything again. Under the ACA, Health Reimbursement Arrangements that reimburse employees for individual health insurance premiums are essentially banned. The IRS considers such arrangements to be group health plans and subject to ACA regulations, including a ban on annual limits and a requirement that essential health benefits—including free preventive care—be covered. The IRS has also clarified that HRAs cannot be integrated with individual market plans in order to satisfy the ACA regulations. And the penalty for non-compliance (ie, for reimbursing employees for individual market premiums) is $100 per day, per reimbursed employee.
If HR 5447 were to become law, employers would once again have the option to reimburse employees for all or a portion of their individual market health insurance premiums. There are pros and cons to this.
- It has never made sense to me that the IRS won’t let HRAs integrate with individual market plans now that the ACA has been implemented. Prior to 2014, this would have made sense, since there were dramatic differences between the individual and small group markets back then. Today, that’s not the case. Individual and small group plans are all regulated by the ACA; they have to include the essential health benefits, cannot have lifetime or annual benefit limits, and must be guaranteed-issue regardless of pre-existing conditions. So while there had to be protections pre-2014 to prevent employers from dumping group coverage and sending employees to the medically-underwritten individual market, that is no longer the case.
- For people facing the subsidy cliff, there’s currently very little in the way of assistance. If your income is just a little over 400 percent of the poverty level (let’s say $65,000 for a household of two), health insurance might be essentially unaffordable, depending on where you live and how old you are. If you work for an employer who has fewer than 50 employees, there’s no requirement that your employer provide group health insurance.Under under the ACA, your employer is not allowed to reimburse you for any of your health insurance premiums. Assuming you’re not self-employed, you can only deduct your total medical expenses (including health insurance premiums) that exceed 10 percent of your income, and that’s only if you itemize your deductions (ie, it’s not like the HSA and IRA deductions that can be taken by everyone, regardless of whether they itemize deductions or not). Colorado expanded Medicaid, so our low-income residents are taken care of. And much of the middle class is also taken care of, thanks to premium subsidies available through Connect for Health Colorado. But there’s not really any help for people who earn too much for subsidies, but for whom health insurance premiums can amount to 20 percent—or more—of their annual income. Allowing employers to reimburse individual market premiums would offer at least the potential for assistance to folks in this situation
- The technicalities of this would be challenging, to say the least. The legislation prevents “double benefits” from an employer-sponsored health reimbursement arrangement and premium tax credits. In other words, if your employer is reimbursing your premiums to bring them to a level that’s considered affordable (the same definition that’s used to determine whether employer-sponsored group health insurance is considered affordable), you can’t also get subsidies in the exchange. Connect for Health Colorado has noted that implementing the new requirements would be time-consuming and expensive, as it would require changes to the eligibility determination system and the creation of Forms 1095-A.
- The legislation is written to make it effective no later than the end of 2016, so it would apply to health insurance plans sold for 2017. This would require rapid implementation of the aforementioned technology changes. The bill might be more palatable if it could be postponed until 2018. Although, on the other hand, that would delay potential relief for the people described above who are currently stuck paying a large chunk of their income for health insurance.