House Considering Break for HRAs on Treasury Ruling

August 2009

The Tax Equity for Health Plan Beneficiaries Act (H.R. 2625) was included in the comprehensive health reform bill that the House Ways & Means Committee considered, the America’s Affordable Health Choices Act, (H.R. 3200). Currently, employees must pay tax on the value of employer health benefits provided to non-dependent family members and this bill would end that practice. Language in the Tax Equity bill also would overturn a Treasury ruling that limits eligible beneficiaries for Health Reimbursement Arrangements (HRA) to spouses and dependent children.

HRAs offer participants a way to set aside current earnings for future health care costs in retirement. They contain certain tax advantages that make them attractive to participants.

The House committee mark-ups are only the first of many steps with respect to the health reform legislation. The HRA provision will likely remain in the health reform bill that is scheduled to be considered by the full House prior to the August recess.

The health reform legislation is estimated to cost over $1.3 trillion and much of that amount will have to be paid for by taxing previously tax-free measures. This will create pressure on many tax-preferred provisions, some of which impact the retirement industry. While nothing is “off the table”, the Joint Committee on Taxation has identified a number of provisions that could raise revenue to pay for health care reform. One of those provisions would suggest taxing withdrawals from HRAs and putting an end to flexible spending accounts. It is still too early in the process to predict how the bill will be paid for as the committees of jurisdiction are still shaping the legislation.