Yesterday, QSEHRAs in Texas got a major endorsement when Texas Attorney General Ken Paxton issued Opinion KP-0179 in response to a recent question posed by Senator Charles Perry relating to the question whether the 21st Century Cures Act, a recent federal law creating and implementing QSEHRAs (Qualifying Small Entity Health Reimbursement Arrangements) preempts Texas Insurance Code Sec. 1501.003 and also the Commissioner's Bulletin B-0028-06. The recent changes in federal law specifically permit a health reimbursement arrangement, stating that a QSEHRA is not a group plan and thus does not comply with the federal requirements for group plans, which includes some crazy provisions that would be virtually impossible for a small business to accommodate.
So what does that mean for the future of small business HRAs in Texas? Good news for fans of QSEHRAs, Attorney General Paxton's endorsement is a big step for the state, given that Texas has been lagging behind other states in this regard. Most states don't have old laws or memos that might prevent small business HRAs from being offered. And if they did, they quickly amended their laws to accommodate them. We are excited to see Texas getting on board!
To understand Attorney General Paxton's thought process and get to the root of the issue, we should start with a little history lesson. Brace yourself, this gets a little complicated.
What is Texas Insurance Code 1501.003?
This is one of the state laws that questions the legality of small business HRAs in Texas. Here's the fine print.
Sec. 1501.003. APPLICABILITY: SMALL EMPLOYER HEALTH BENEFIT PLANS. An individual or group health benefit plan is a small employer health benefit plan subject to Subchapters C-H if it provides health care benefits covering two or more employees of a small employer and:
- The employer pays a portion of the premium or benefits;
- The employer or a covered individual treats the health benefit plan as part of a plan or program for purposes of Section 106 or 162, Internal Revenue Code of 1986 (26 U.S.C. Section 106 or 162); or
- The health benefit plan is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j).
So what exactly was in that bulletin from 2006?
According to their website, this bulletin, written by the former Texas Insurance Commissioner over a decade ago, addresses the applicability of Chapter 1501 of the Texas Insurance Code stated above to health reimbursement arrangements and reminds carriers, agents, and other regulated entities of their responsibility to comply with Texas law.
The bulletin "does not expressly prohibit" employers from reimbursing the premiums of individually owned health benefit plan of their employees, it requires the insurer to include certain benefits, usually only required in group health plans. The practical effect of requiring these plans to resemble group plans is essentially making small business HRAs under state law a practical impossibility.
TDI vs. 21st Century Cures Act
So what happens when state laws and federal laws are contradicting each other? Thanks to the founding fathers and their infinite wisdom, the Constitution has a built-in tie-breaker. When federal law and state law are in conflict, Congress always preempt state low.
In his statement, Attorney General Paxton asserts that a court would likely determine that the 21st Century Cures Act and its provisions do preempt section 1501.003 of the Texas Insurance Code and TDI's Bulletin No. B-0028-06.
What's more, in the very first line of the 21st Century Cures Act where it addresses small business HRAs states that "This bill amends the Internal Revenue Code, the Patient Protection and Affordable Care Act (PPACA), and other laws to exempt qualified small employer health reimbursement arrangements from certain requirements that apply to group health plans." In other words, this bill supersedes all other laws, including state laws.
Our team feels very optimistic about moving forward with small business HRAs because of the law itself and how it was written. Specifically, the 21st Century Cures Act amended the Internal Revenue Code to specifically say “the term ‘group health plan’ shall not include any qualified small employer health reimbursement arrangement.”
What happens now?
So are small business HRAs in Texas in the clear? Not yet, but things are looking good. Remember that all Attorney General Paxton did was make an official statement, a duty assigned to his role by the Texas Constitution and Government Code. He may be the highest ranking attorney in the state, but that doesn't mean that his opinion becomes law. The ultimate determination is left to the courts, but an endorsement from the attorney general is a major step. TDI Commissioner Sullivan is expected to issue a response to Attorney General Paxton's opinion, and our team will be keeping a close eye on that.
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Take Command Health is here to help
Want to learn if a small business HRA is right for your small business? Setting up an HRA doesn’t have to be difficult. The first step is to find an adviser you trust to guide you through the process. The experts at Take Command Health will help you come up with an efficient HRA design that is compliant with all the rules. Once your HRA is established, our team of experts will help your employees choose a plan that fits their needs, handle the onboarding process, and make tax time a breeze.