With President Obama recently signing into law the 21st Century Cures Act, small schools, cities and counties will be able to offer stand-alone HRAs (Health Reimbursement Arrangements) to their employees to reimburse for the employee’s health insurance policy, if certain conditions are met. In addition to the HRA provisions, the 21st Century Cures Act contains a variety of healthcare provisions including providing additional monies for biomedical research, speeding up the approval of new drugs/devices, improving mental health care and combating opioid abuse. This article will focus on the 21st Century Cures Act for small schools, cities and counties.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)
The provision within the 21st Century Cures Act allows eligible small employers to offer a qualifying stand-alone HRA. It can be used to reimburse employees for qualified medical expenses, including health insurance premiums. The QSEHRA will be effective for plan years beginning after December 31, 2016.
This provision overturns guidance issued by the Internal Revenue Service and the Department of Labor that previously stated that these arrangements did not comply with the Affordable Care Act since an HRA, by design, has annual limits and does not reimburse for all preventative care expenses, requirements of group health plans under the Affordable Care Act. While this still holds true for large employers, the Act changes this for small employers.
Employer Requirements for QSEHRAs
- Must have less than 50 full-time employees
- No group health plan offering
- HRA must be funded solely by employer contributions (no salary reduction contributions)
- All eligible employees must be provided with the HRA on the same terms (HRA benefits may vary based upon age and family size variations)
- Maximum annual employer contribution: $4,950 single, $10,000 families
- Benefit amount must be reported on the employee's W-2 and the employer must follow reporting requirements
Additional QSEHRA Details
As with all HRAs, employees, spouses and dependents are not eligible for health insurance premium tax credits for any month they are provided reimbursement from a QSEHRA. The HRA reimbursement would be considered affordable coverage under the Affordable Care Act (ACA).
If an employee uses the QSEHRA funds to purchase an insurance plan that does not provide minimum essential coverage under the ACA, the reimbursement amount is subject to income tax and may be included in the employee’s gross income.
Retroactive transition relief from penalties has been granted to small employers who continued to reimburse employees for medical expenses since June 30, 2015 (this was the last date the IRS had extended transition relief through).
If an employer chooses to offer a QSEHRA, they must provide a written notice to all eligible employees, provide this statement at least 90 days before the beginning of the plan year and include the following information:
- The amount that is being made available to them through the HRA.
- A notice to employees that if they are not covered by a health insurance plan that provides minimum essential coverage, then they may be subject to the Individual Mandate (The Individual Mandate is the part of the ACA that requires all Americans to be covered by a qualified health insurance plan.)
- A notice that if they are not covered by a health insurance plan that provides minimum essential coverage, that reimbursements may be considered income and is subject to income tax.
For more information on HRAs, contact your NIS Representative.
National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.