The 21st Century Cures Act Gives Birth to the Small Employer HRA Plan
On December 7, the 21st Century Cures Act was approved by Congress, and now needs only President Obama’s signature to go into effect on January 1, 2017. The Cures Act covers mainly medical research and innovations, but also includes a provision for a new flavor of an employer-sponsored Health Reimbursement Account.
Enter the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which enables small employers to provide stand-alone health reimbursement arrangements that can be used to reimburse eligible healthcare expenses – including health insurance premiums. This provision overturns guidance issued by the Internal Revenue Service and the Department of Labor that previously stated that these arrangements violated the Affordable Care Act.
Which Employers Can Offer a QSEHRA?
An employer is eligible to establish a Small Employer Health Reimbursement Arrangement only if that employer:
- is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and
- does not offer a group health plan to any employees.
This new HRA has characteristics that are different from integrated HRAs that are currently permitted (and will still exist for larger employers). The big difference is the ability to reimburse participants for individual health coverage premiums.
- The QSEHRA will be able to reimburse eligible employees for eligible unreimbursed medical expenses as well as for premiums paid for individual coverage. Premiums paid to purchase other group health coverage, such as through a spouse’s employer’s plan, are not eligible for reimbursement under a QSEHRA.
- Annual benefits under the QSEHRA cannot exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered), must be employer-funded (no salary reductions), and can only be used for Code §213(d)medical care. The annual reimbursement limit is prorated for employees who are not covered by the HRA for the entire year.
- The arrangement must be provided on the same terms to all eligible employees, although the HRA benefits can vary based on age and family-size variations.
Rules and Reporting Obligations – The Fine Print
- Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year.
- Access to subsidies in the Exchange will be eliminated or reduced by the amount available for reimbursement through the HRA during the months that they are covered by the employer’s HRA.
- Employers offering this type of HRA will need to provide a statement to employees which indicates
- the amount available through the HRA,
- instructs the employee to provide the statement to the Exchange when applying for a subsidy, and
- indicates reimbursements are taxable if the employee doesn’t have minimum essential coverage.
- A qualified QSEHRA is not considered a “group health plan” for most purposes under the Code, ERISA and the Public Health Service Act and is not subject to COBRA.
A Qualified Small Employer Health Reimbursement Arrangement is available for plan years beginning after December 31, 2016, and can be a great option for small employers who want to provide an attractive benefit for their employees but are unable to sponsor and subsidize an insured group health plan. Be sure to work with an experienced consultant to understand the restrictions and reporting obligations for the QSEHRA.
NEO has been providing HRA administration services for over 25 years and is ready to assist employers immediately with this new type of HRA. Our QSEHRA plans are available in three plan designs:
- A stand-alone HRA that reimburses only qualified out-of-pocket medical expenses as defined by IRC 213, or,
- A stand-alone HRA that reimburses only premiums for individual health insurance coverage, or,
- A stand-alone HRA that reimburses both qualified out-of-pocket medical expenses and premiums for individual health insurance coverage.
Contact NEO and we can help you determine if your group meets the requirements.