February 6, 2015
- Treasury Suggests Possible Flexibility on Use of Stand-Alone HRAs for Purchase of Health Coverage
- Congressional Committee Hearings Examine President's Budget in Detail
Treasury Suggests Possible Flexibility on Use of Stand-Alone HRAs for Purchase of Health Coverage
In a February 3 hearing of the U.S. House of Representatives Ways and Means Committee to discuss the White House’s recent budget proposal (see story below), U.S. Treasury Secretary Jack Lew expressed a willingness to take a closer look at current guidance prohibiting the use of Health Reimbursement Arrangements (HRAs) for purchasing individual coverage.
In this hearing, Representative Charles Boustany (R-LA) expressed concern about Notice 2013-54 , issued by the Internal Revenue Service (IRS) in September 2013, which stated that an employee cannot use funds from a stand-alone HRA to purchase individual health insurance on a tax-favored basis. Under this guidance, an HRA can only be made available to employees who are enrolled in qualifying employer-sponsored major medical coverage; otherwise the employer could be subject to a penalty.
“Why would Treasury institute this kind of a draconian penalty?” Boustany asked Lew. “That seems to belie the sentiment that you’re trying to help small businesses and working families.”
Lew responded, “Our objective, and the objective of the Affordable Care Act, is to make sure that affordable health care is available to all, and I believe that the provisions that you’re referring to are not consistent with that. I’d be happy to follow up with you.”
The Council shares Boustany’s concern and believes that the Obama Administration’s position is also problematic for large employers. Lew’s comments will be helpful in our outreach to Congress and the Obama Administration, as we make the following recommendation from our A 2020 Vision public policy strategic plan a high priority:
RECOMMENDATION 4(e): Permit employers to establish stand-alone Health Reimbursement Arrangements, or similar accounts, that can be used to purchase individual coverage. Employers and employees could share financial responsibility for the account, providing another means by which they could meet their respective obligations under PPACA. Amounts credited to these accounts could only be used to purchase qualifying coverage and to pay for qualified health expenses. In order for employers to avoid paying the PPACA shared responsibility penalty, they would need to make a contribution meeting the “affordability” test. The law must prohibit “double dipping,” in which employees receive employer money and a government subsidy, if coverage is purchased through a public exchange. To ensure a viable, individual insurance market, there must also be adequate protections against adverse selection or risk segmentation.
In 2014, Boustany introduced the Small Business Healthcare Relief Act, which would prevent small businesses from being penalized for providing monetary assistance to their employees to purchase insurance on the individual market on a pre-tax basis (such as in an HRA). Senator Charles Grassley (R-IA) recently offered (and then withdrew) similar language as an amendment in the recent Senate Finance Committee markup of the Hire More Heroes Act.
The Council will soon be following up with Treasury officials to discuss this matter, and will continue to advocate for legislation that permits stand-alone HRAs to be offered by employers of all sizes for the purchase of individual coverage.
Congressional Committee Hearings Examine President's Budget in Detail
As noted in the above story, following the release of President Obama’s Fiscal Year 2016 federal budget proposal on February 2, various congressional committees held hearings to examine the Obama administration’s budget priorities in more detail. (See the February 2 Benefits Byte for the Council’s summary.) Members of the president’s cabinet were present to provide testimony and answer questions.
Member statements, witness testimony and (in some cases) video recordings are available on the committees’ hearing pages:
U.S. Senate Finance Committee
- Hearing with the Internal Revenue Service (IRS) Commissioner John Koskinen
- Hearing with U.S. Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell
- Hearing with U.S. Department of the Treasury Secretary Jacob Lew
U.S. Senate Budget Committee
- Hearing with U.S. Office of Management and Budget (OMB) Director Shaun Donovan
U.S. House of Representatives Ways and Means Committee
- Hearing with Treasury Secretary Jacob Lew
U.S. House of Representatives Budget Committee
- Hearing with OMB Director Shaun Donovan
Throughout the committee hearings, committee members and the witnesses discussed several recurring themes concerning employee benefits issues.
Lawmakers expressed concern about the ramifications of the upcoming King v. Burwell case before the U.S. Supreme Court, which calls into question the legality of federal subsidies for individuals obtaining health coverage in federally facilitated insurance exchanges under the Patient Protection and Affordable Care Act (PPACA). The high court will hear arguments in early March, with a decision expected in June (see the November 7, 2014 Benefits Byte for more information).
Senate Finance Committee Chairman Orrin Hatch (R-UT) voiced concerns about the case and asked each witness whether the administration has a contingency plan in case the court rules against the legality of federal exchange subsidies. While Hatch posed the question in his opening statement to each witness, neither Koskinen nor Lew discussed the matter. However, the issue was brought up repeatedly during HHS Secretary Burwell’s hearing before the Senate Finance committee. Burwell maintained that the administration believes that it is implementing PPACA as the law intended and that she is currently focusing on the upcoming February 15 deadline for health care open enrollment. Several other senators pressed her on the issue, including senators John Cornyn (R-TX), Dean Heller (R-NV) and Tim Scott (R-SC). Hatch closed his questioning on the issue by stressing that without any guidance to insurers, a ruling invalidating the subsidies in federal exchanges would be extremely disruptive.
Other health care issues discussed were health care payment reform and the use of technology and telehealth. When questioned during the Senate Budget hearing about the payment reform models for Medicare and Medicaid included in the budget, OMB Director Donovan noted that the data indicates that there will be large savings, but that the data is too preliminary to have reliably included a projected savings figure in the budget.
In the Senate Finance hearing with Burwell, Sen. John Thune (R-SD) brought up the advances that have been made in telehealth, but noted that the regulatory environment has not kept pace. Burwell responded that it’s an area HHS plans to add to the delivery system reform discussion and that they hope to be moving forward with the regulations. The Council’s recent strategic plan, A 2020 Vision, recommends allowing for flexibility with the advances of technology, specifically through the adoption of a “presumption of good faith” standard allowing employers to use technology as it becomes available, rather than waiting for regulatory approval and the adoption of a “least burdensome compliance” standard that fully incorporates technological capabilities in conjunction with all benefit plan regulations.
Several lawmakers also discussed the budget proposals addressing retirement savings. Ranking Democratic member of the Senate Finance committee Ron Wyden (D-OR) argued that the retirement proposals for tax changes will help families, but emphasized that comprehensive tax reform would be the most effective way to help families. During the House Ways and Means hearing, Rep. John Lewis (D-GA) asked what was in the budget that would help more Americans save and prepare for retirement. Lew said that the budget creates incentives for employers to set up 401(k) plans, assists with the administrative burdens through tax credits, strengthens the myRA program and expands automatic enrollment, which behavioral economics have shown make employees more likely to save. Lewis followed up by asking if Americans are saving more or less, to which Lew responded that as the economy continues recovering, Americans save more, but that the incentives are intended to continue increasing retirement savings and security.
The question of the fiduciary definition under ERISA was also discussed during the House Budget hearing. Rep. Tom Cole (R-OK) noted the significant bipartisan concerns about the ERISA fiduciary rule; he stated that he hoped that OMB would commit to a full review and economic analysis of the impact of the rule to ensure the concerns have been addressed. Donovan agreed that it needed to be looked at but did not provide a timeframe.
Additional hearings on the President’s budget proposal may be scheduled in the coming weeks and months, especially as lawmakers in the House assemble appropriations measures to fund government operations.
For more information on the health care elements of the budget, contact Katy Spangler, senior vice president, health policy, or Kathryn Wilber, senior counsel, health policy. For more information on the retirement savings elements of the budget, contact Lynn Dudley, senior vice president, global retirement and compensation policy, or Jan Jacobson, senior counsel, retirement policy. For questions on either issue area, you may also contact Diann Howland, vice president, legislative affairs, or Jill Randolph, director, legislative and political affairs. All can be reached at (202) 289-6700.