Employers now can’t use health reimbursement accounts to help workers buy insurance on a tax‑favored basis

Employee benefits attorney Brandon Long was featured in a Q&A with The Oklahoman discussing the features and benefits of employer-funded health reimbursement arrangements (HRAs) and how the enactment of Affordable Care Act now restricts an employer’s ability to use HRAs.

Long explained that HRAs are offered by some employers — typically smaller employers who can’t afford to provide group health insurance — to reimburse their workers for qualified medical expenses incurred, up to a maximum dollar amount. Not only do HRAs provide certain flexibility that other types of plans don’t, but the amount reimbursed through an HRA are excludable from the employee’s income.

Although HRAs can be structured in different ways, he said, one common use of HRAs in the past has been for small employers to pay the employee’s individual health insurance policy premium directly to the insurance company, on a tax-free basis to the employee. With the enactment of health care reform, that tax benefit is now going away.

“Last month, the Internal Revenue Service and the federal labor department issued guidance clarifying that, because of the Affordable Care Act, employers no longer can use so-called stand-alone HRAs to help their employees buy individual insurance policies on a tax-favored basis,” said Long. “This will likely impact small employers and their employees the most.”