The 21st Century Cures Act passed in the Senate this week, and while a majority of the focus has been on the bill’s biomedical and drug implications, it also contains an important provision with a much broader, more immediate impact.
The Small Business Healthcare Relief Act enables small businesses with fewer than 50 full-time employees to offer standalone health reimbursement arrangements to their staff. These can be used to offset eligible healthcare expenses, including health insurance premiums. Their adoption could change the healthcare picture for millions of Americans.
According to research, 71 percent of firms with fewer than 50 full-time employees do not currently offer health insurance, citing high costs as the No. 1 barrier. Those costs have risen dramatically in recent years. The average premium for an individual employee health insurance plan was $2,889 in 2001 ($3,886 adjusted for inflation). By 2015, that number had jumped to $5,963, according to the Medical Expenditure Panel Survey.
The Cures Act has the potential to level the health benefits field for small businesses, paving the way for innovative offerings that help those business keep pace with larger firms in the labor market.
This legislation comes in response to regulations that limit the options for small employers to provide health benefits. Small businesses don’t have effective access to the group health market, largely due to bandwidth issues.
The complex process of structuring and offering a health plan tends to be beyond the reach of the smallest of organizations within our economy. But many of these business owners want to provide their employees with something to help offset the rising costs of healthcare in the U.S.
Prior to September 2013, employers turned to offering fixed amounts of pre-tax money—originally called “defined-contribution plans”—or reimbursement arrangements. According to surveys of National Federation of Independent Businesses members, approximately 14 percent to 17 percent were offering these types of arrangements.
By the end of 2013, those options were shut down. The Internal Revenue Service, Health and Human Services, and Department of Labor ruled that account-based plans did not meet the health plan requirements outlined in the Affordable Care Act.
The government didn’t explicitly prohibit small businesses from providing this type of benefit, but they did make it impractical. As of July 1, 2015, employers who offered healthcare reimbursement options could be fined $100 per day for every employee or $36,500 per employee every year. Those are hefty fines for any business. This ultimately worked to the detriment of the workers employed by these companies and hampered the ability of these small businesses to offer attractive and competitive health benefits.
So where are we today? With the passage of the Cures Act and the Small Business Healthcare Relief Act, eligible small businesses will be able to resume offering health reimbursement arrangements, and again help cover health insurance premiums and out-of-pocket expenses for employees.
While the law goes into effect for plan years beginning after Dec. 31, it’s important to note that it provides transition relief through that date, so that small employers with non-compliant plans will not be penalized.
The bill has reopened an avenue for business owners to make healthcare accessible and affordable for employees. It may also push the concept of combining private exchanges with account platforms, so individuals can pay for both insurance premiums and out-of-pocket medical expenses, effectively offering U.S. workers access to the money and the marketplace for their healthcare.
My company, WEX Health, provides the software and payment framework that powers the administration of over 200,000 employers’ account-based plans. It has been a pioneer in the provision of solutions to power defined contribution health offerings.
We were also the first to raise this issue on Capitol Hill, and we helped draft the initial legislative language of the bill. Along the way, we were able to build strong bipartisan support for a sensible bill that helps small businesses, the engine of job growth in the U.S.
For now, we can expect to see increased adoption of health reimbursement arrangements in early 2017, with the largest uptick playing out in 2018. We hope that will grow along with continued bipartisanship and a coalition of business and industry groups that want to see changes that support the millions of U.S. workers who are driving the economy forward.
Chris Byrd is Executive Vice President of WEX Health, the nation’s largest cloud-based healthcare financial management platform with a network of partners that reaches 200,000 employers and more than 17 million consumers.
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