House Ways & Means Committee Issues Report on Custom Health Option & Individual Care Expense Arrangement Act
Here are excerpts:
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I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 3799, the "Custom Health Option and Individual Care Expense Arrangement Act," as ordered reported by the
B. Background and Need for Legislation
26 CFR 54.9802-4 allows employers to offer tax-exempt, defined contributions to their employees for the employees to purchase qualified health insurance on the individual market through Individual Coverage Health Reimbursement Arrangements (ICHRAs). Unlike Qualified Small Employer Health Reimbursement Arrangements (PL 114-255), these accounts do not have restrictions on business size or annual contribution limits. Additionally, ICHRAs may be offered to different classes of employees, such as part-time, full-time, or seasonal employees, while ensuring discrimination protections for the groups of employees.
While this coverage option is valuable to employers, this was created through administrative rulemaking and not legislation. The Committee believes legislation is needed to codify this important health coverage option so employers can be confident the option will be permanent.
C. Legislative History
Background
H.R. 3799 was introduced on
Committee hearings
On
Committee action
D. Legislative History
Pursuant to clause 3(c)(6) of rule XIII, the following hearings were used to develop and consider H.R. 3799:
II. EXPLANATION OF THE BILL
A. Treatment of Health Reimbursement Arrangements Integrated With Individual Market Coverage (sec. 2 of the bill and sec. 9815 of the code)
PRESENT LAW
Group health plan requirements
The Internal Revenue Code (the "Code") imposes various requirements with respect to employment-related health plans, referred to for this purpose as group health plans./1/ The Patient Protection and Affordable Care Act ("PPACA")/2/ expanded the market reform requirements applicable to group health plans./3/
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/1/See, e.g., sec. 4980B (relating to continuation coverage or "COBRA" requirements) and Chapter 100 (secs. 9801-9834, relating to various additional requirements, such as prohibitions on preexisting condition exclusions and discrimination based on health status). Code section 5000 also imposes Medicare secondary payor requirements on group health plans.
/2/Pub. L. No. 111-148,
/3/See, e.g., sections 2711 and 2713 of the PPACA. These provisions of the PPACA are incorporated into the Code through section 9815.
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Under the Code, an employer is generally subject to an excise tax of
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/4/Section 4980B(a) and (b) apply to a violation of the COBRA requirements, subject to an exception for plans of employers with fewer than 20 employees. Section 4980D(a) and (b) apply to a violation of the requirements under Chapter 100, subject to an exception for a plan of an employer with no more than 50 employees if coverage is provided solely through insurance. In some cases, a party other than the employer, such as a multiemployer plan, may be liable for the tax. For simplicity, this document refers to "employers" to indicate all such entities that may sponsor group health plans.
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Other health rules under the Code
Under the PPACA, "minimum essential coverage" includes employer-sponsored coverage under a group health plan, other than certain types of limited coverage, such as coverage only for vision or dental medical services./5/ Minimum essential coverage also includes coverage purchased in the individual insurance market, other than certain types of limited coverage, such as coverage only for vision or dental medical services.
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/5/Sec. 5000A.
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An advanceable, refundable income tax credit, the premium tax credit ("PTC"), is available to certain individuals who purchase health insurance coverage in the individual market through an Exchange ("Exchange coverage")./6/ However, an employee is generally not eligible for the PTC if his or her employer offers affordable minimum essential coverage under a group health plan and the coverage provides minimum value. For this purpose, coverage is affordable if the employee's share of the premium for self-only coverage under the group health plan is not more than 9.12 percent (for 2023)/7/ of the employee's household income. To provide minimum value, the coverage offered under the group health plan must cover at least 60 percent of the total costs of benefits covered under the plan. An individual who applies for advance PTC with respect to Exchange coverage for a year must provide the Exchange with certain information, including information relating to employer-provided minimum essential coverage./8/
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/6/Sec. 36B. An Exchange is established under section 1311 of the PPACA. Lower-income individuals who are eligible for PTCs and enrolled in health insurance coverage purchased on an Exchange may also be eligible for cost-sharing reductions under section 1402 of the PPACA.
/7/
/8/Sec. 1411(b) of the PPACA. This information is subject to verification during the Exchange process under section 1411(c) and (d) of the PPACA.
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If an applicable large employer fails to offer employees minimum essential coverage, or offers minimum essential coverage that either is not affordable (under the standard described above) or fails to provide minimum value, and any employee is allowed PTC, the employer may be subject to a tax penalty./9/ For this purpose, applicable large employer generally means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year./10/
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/9/Sec. 4980H.
/10/In determining whether an employer is an applicable large employer (that is, whether the employer has at least 50 full-time employees), besides the number of full-time employees, the employer must include the number of its full time equivalent employees for a month, determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120. In addition, in determining applicable large employer status, members of the same controlled group, group under common control, and affiliated service group under section 414(b), (c), (m) and (o) are treated as a single employer.
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Health reimbursement arrangements
In addition to offering health coverage, employers sometimes reimburse medical expenses of their employees (and their spouses and dependents). These arrangements are sometimes used by employers to pay or reimburse employees for medical expenses that are not covered by health insurance and are commonly referred to as health reimbursement arrangements ("HRAs")./11/
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/11/See secs. 105(b) and 106;
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The amounts in an HRA can be used only to reimburse medical expenses (including health insurance premiums) and not for other purposes, and HRAs cannot be funded on a salary reduction basis. HRAs must have a maximum dollar amount for each coverage period, and amounts remaining in an HRA at the end of the year may be carried forward to be used to reimburse medical expenses in following years./12/
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/12/General guidance with respect to HRAs is provided in Notice 2002-45.
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An employee may exclude amounts provided through an HRA from gross income. For employer payments or reimbursements under an HRA to be excluded from gross income, expenses must be substantiated and an employee must be entitled to receive payments from the employer only if he or she incurs qualifying expenses./13/
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/13/Treas. Reg. sec. 1.105-2.
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After the enactment of the PPACA and before the establishment of individual coverage HRAs (as described below), an HRA generally failed to meet the group health plan requirements imposed by the PPACA unless the HRA complied with
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/14/See, e.g., Notice 2013-54, 2013-40 I.R.B. 287,
/15/See Notice 2015-87, 2015-52 I.R.B. 889,
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Individual coverage HRAs
In
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/16/T.D. 9867, 84 Fed. Reg. 28888,
/17/Treas. Reg. sec. 54.9802-4(e).
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Individual coverage HRAs are subject to detailed regulations, including the following requirements: the terms of the individual coverage HRA must require that employees, spouses, and dependents enrolled in the HRA also be enrolled in individual health insurance coverage;/18/ employers are not permitted to allow employees to choose between an individual coverage HRA and traditional employment-related health coverage;/19/ employers are required to offer individual coverage HRAs on the same terms to all employees within enumerated classes of employees;/20/ generally, employers are required to provide employees notice regarding the individual coverage HRA at least 90 calendar days before the beginning of the plan year;/21/ and employers are required to adopt reasonable procedures for substantiation regarding individuals' enrollment in qualifying individual coverage./22/
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/18/Treas. Reg. sec. 54.9802-4(c)(1).
/19/Treas. Reg. sec. 54.9802-4(c)(2).
/20/Treas. Reg. sec. 54.9802-4(c)(3).
/21/Treas. Reg. sec. 54.9802-4(c)(6).
/22/Treas. Reg. sec. 54.9802-4(c)(5).
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Because individual coverage HRAs are employer-sponsored group plans, individuals enrolled in individual coverage HRAs are not eligible for PTCs. Furthermore, the final rules include an affordability test, under which the value of the employer contribution to the individual coverage HRA is compared to the price of the lowest cost silver plan available to the employee. Similar to the rule for traditional group health plans, if the employee's share of the premium for self-only coverage under that plan is more than 9.12 percent (for 2023) of the employee's household income, the individual coverage HRA is not considered affordable and the employee may be entitled to PTCs for individual health coverage purchased on an Exchange./23/
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/23/Treas. Reg. sec. 1.36B-2(c)(3). An individual coverage HRA that is affordable is also treated as providing minimum value.
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In addition to amounts contributed to an individual coverage HRA by the employer, employees may make contributions through a cafeteria plan to purchase individual coverage, if, for example, the employer's contribution to the individual coverage HRA is less than the premium for the individual coverage selected by the employee. However, amounts available through a cafeteria plan may not be used to purchase individual health coverage on an Exchange, so, in these circumstances, employees must use the individual coverage HRA to purchase off-Exchange coverage./24/
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/24/Sec. 125(f)(3), providing that an employer generally may not provide a qualified health plan offered through an Exchange as a cafeteria plan benefit.
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REASONS FOR CHANGE
The Committee believes that individual coverage HRAs have greatly enhanced the health coverage options available to individuals, families, and employers. Individual coverage HRAs have provided more choice and flexibility for working people, and have saved employers, particularly small businesses, on the administrative expenses and burdens associated with traditional employer-sponsored health insurance. The Committee therefore believes it is appropriate to codify the regulations permitting the adoption of these arrangements, to ensure that families and businesses may continue to benefit from them.
EXPLANATION OF PROVISION
The provision codifies the final rules permitting employers to offer individual coverage HRAs--renamed as Custom Health Option and Individual Care Expense, or "CHOICE," arrangements--without violating the group health plan requirements. Specifically, the provision specifies that a CHOICE arrangement that otherwise satisfies the requirements prescribed in the proposal complies with sections 2711 and 2713 of the PPACA.
The provision defines a CHOICE arrangement as an HRA under which payments or reimbursements may only be made for medical care during periods during which a covered individual is also covered under individual health insurance coverage offered in the individual market (other than coverage that consists solely of excepted benefits) or under Medicare parts A and B or C. In addition, a CHOICE arrangement must meet the following requirements:
The CHOICE arrangement must be offered to all employees in the same class of employees on the same terms.
The employer may not offer any other group health plan to any employees in such a class.
The CHOICE arrangement must have reasonable procedures to substantiate that the covered individual is, or will be, enrolled in qualifying individual market coverage as of the beginning date of coverage under the arrangement; and that the covered individual remains so enrolled when requests are made for payment or reimbursement of medical care.
A CHOICE arrangement generally must provide each employee eligible to participate in the in the CHOICE arrangement with written notice of the employee's rights and obligations under the arrangement not later than 90 days before the beginning of the plan year. The notice must be sufficiently accurate and comprehensive to appraise the employee of such rights and obligations be written in a manner calculated to be understood by the average employee eligible to participate.
The provision includes the following classes of employees: Full-time employees; Part-time employees; Salaried employees; Non-salaried employees; Employees whose primary site of employment is in the same rating area; Employees who are included in a collective bargaining unit; Employees who have not met a waiting period requirement; Seasonal employees; Employees who are non-resident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within
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/25/Under the section 861(a)(3) rules for the source of income from personal services.
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Such other classes as designated by the
Under the provision, an employer may designate two or more of the classes as specified classes to which the arrangement is offered, and distinctions regarding full-time, part-time, and seasonal employees must be made under rules similar to those that apply under sections 105(h) or 4980H, at the election of the employer for the plan year. An arrangement does not fail to qualify as a CHOICE arrangement if the maximum dollar amount varies within a class because the amount increases with the number of additional individuals covered under the arrangement, or increases as the age of the employee increases (as long as the increase is not in excess of 300 percent of the lowest maximum dollar amount available). Finally, an employer that currently offers a traditional group health plan to a class of employees is permitted to prospectively offer newly-hired employees in that class a CHOICE arrangement while continuing to offer previously-hired employees a traditional health plan without violating the rule prohibiting differing offers within a class of employees.
The provision provides that, to the extent not inconsistent with the provision, no inference is intended with respect to the individual coverage HRA final rules. The provision also specifies that all references in the provision to CHOICE arrangements must be treated as including references to individual coverage HRAs.
EFFECTIVE DATE
The provision is effective for plans years beginning after
III. VOTE OF THE COMMITTEE
In Compliance with the Rules of the
H.R. 3799 was ordered favorably reported to the house of representatives as amended by a roll call vote of 25 Yeas To 18 Nays (With A Quorum Being Present). The vote was as follows:
[Link to chart at bottom.]
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of the
The bill is estimated to have no effect on Federal fiscal year budget receipts for the period 2023-2033.
B.
In compliance with clause 3(c)(2) of rule XIII of the Rules of the
C. Cost Estimate Prepared by the
The Committee has requested but not received from the Director of the
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of the
A. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of the
B. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-4).
The Committee has determined that the bill does not contain Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental mandate on State, local, or tribal governments.
C. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff Benefits
With respect to clause 9 of rule XXI of the Rules of the
D. Tax Complexity Analysis
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
E. Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules of the
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VII. DISSENTING VIEWS
DISSENTING VIEWS ON CHOICE ARRANGEMENT ACT, H.R. 3799
H.R. 3799 (
Employers can use ICHRAs to discriminate against certain classes of workers. The legislation allows employers to offer ICHRAs to only certain classes of workers, for example hourly workers or older workers but not C-suite executives. Employers might target groups of workers with higher health costs, sending them to the individual market with a voucher.
ICHRAs could increase premiums and worsen risk in the individual market. A Brookings analysis found that allowing employers to offer ICHRAs alongside a traditional group health insurance plan could increase marketplace premiums by 16 percent to 93 percent. To the extent employers find ways to offload high-cost or high-risk workers onto the individual market, the adverse selection would drive up premiums in the individual market.
The bill could result in circumvention of Affordable Care Act (ACA) protections on pre-existing conditions, lifetime and annual limits, or preventive care. The legislation describes individual market coverage but does not explicitly reference the code in defining an individual health insurance plan that requires the ACA market protections like pre-existing conditions protections.
The mere offer of an ICHRA may leave employees worse off. An employee who has an offer of an "affordable" HRA is prevented from accessing premium tax credits in the marketplace. This offer can be particularly problematic for lower-wage workers that would otherwise be able to find more affordable coverage in the Marketplace and could lead to higher premiums and out-of-pocket costs than under ACA coverage for the employee.
Ranking Member
I have big concerns about this bill, starting with the fact that 36 hours ago, it had never been mentioned in this Committee. This bill would codify a
Employers could offer lesser coverage through ICHRAs to lower-income workers, hourly workers, or seasonal workers, reserving better coverage for their C-suite executives. Employers can also single out only the high-cost workers to get Marketplace coverage, leaving a cheaper, healthier pool for the employer's group coverage.
We've seen this playbook from the
For many low wage workers, they may be better off with no ICHRA and using the Marketplace premium tax credits strengthened by
If we worked together, we could have mitigated these issues and included important safeguards that protect employees from discrimination and ensure they have the information to make the best health care choices for their families. Sadly,
Thank you, and I yield back.
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The report is posted at: https://www.congress.gov/congressional-report/118th-congress/house-report/107/1
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