Leaders of the largest lobby for small businesses are crying foul over a little-known IRS rule that they say will impose crippling penalties on the employers who can least afford a big fee hike.
The rule is one of many drafted by the IRS in response to the Patient Protection and Affordable Care Act. It would fine companies that do not provide their workers group health coverage, instead offering employees health reimbursement arrangements — tax-free reimbursements to help employees purchase individual insurance policies.
A recent survey by the National Federation of Independent Business found that 14 percent of small businesses that do not provide health insurance to their employees instead offer them HRAs.
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It is this relatively small group of firms that would be penalized far beyond what other companies that do not provide group health insurance to workers. The IRS justifies the penalty by pointing to a provision of the PPACA that prohibits employer-funded health plans that impose limits on the coverage of certain conditions as well as those that do not offer certain preventative services for free. HRAs amount to an end-run around minimum insurance requirements, the IRS reasons.
Under the rule, the IRS may fine such companies $100 a day per employee, up to a maximum of $500,000. The fine appears to apply even to businesses with less than 50 employees — the same ones exempt from the health care mandates in the PPACA.
"It's hard to believe Congress or the President intended to punish employers much more severely for actually helping their workers," said NFIB Policy Director Kevin Kuhlman in a June statement. "Nevertheless, that's the consequence and most small businesses don't know it."
However, a bipartisan group of lawmakers in Congress have announced plans to undo the rule via legislation. The proposed bill, sponsored by Sens. Charles Grassley, R-Iowa, and Heidi Heitcamp, D- N.D., would remove the fine for businesses with fewer than 50 employees. The Obama administration has so far signaled openness to the proposed change.
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