HRA Beneficiary Fix

April 2007

Rep. Jim McDermott (D-WA) recently introduced the Tax Equity for Health Plan Beneficiaries Act of 2007, HR 1820. It would provide tax parity to non-spouse/non-dependent individuals who qualify for and receive employer-provided health plan benefits. The bill also permits a Voluntary Employees Beneficiary Association (VEBA) to provide full health benefits to a non-spouse, non-dependent beneficiary without endangering its tax-exempt status.

Another provision directs the Treasury to issue rules that allow employees to elect to have their Health Reimbursement Accounts (HRAs) reimburse the uninsured medical expenses of a non-spouse, non-dependent designated beneficiary. Because it would override current Treasury rules concerning non-spouse, non-dependent beneficiaries, the HRA provision would correct beneficiary tax issues that exist in Retirement Health Savings (RHS) programs.

Rep. McDermott has asked for a hearing on the bill in the committee’s health subcommittee – no word on when that might happen. A Senate companion bill could be introduced shortly by Senator Gordon Smith (R-OR) who is seeking a democratic co-sponsor.

Even if hearings are held on the bill, the outlook for this Congress is uncertain as it would have to be included in a larger health or tax bill to gain passage.