One of the unintended consequences of the Affordable Care Act had been the elimination of health reimbursement arrangements as a tool for small employers to avoid the complexities of maintaining a group health plan and the associated costs.
However, the 21st Century Cures Act that took effect Jan. 1 permits qualified small employers to once again offer HRAs to be used to reimburse employees’ individual market insurance premiums or other types of medical expenses.
This is a significant development for small employers that could not offer HRAs to employees unless those same employees also participate in a group health plan sponsored by the employer.
In addition, small employers could not provide for the payment of individual market insurance premiums of employees on a nontaxable basis. The consequence of failing to comply with these restrictions exposed small employers to a steep penalty of $100 per day, per employee.
Under the act, a qualified small employer HRA is no longer subject to the preceding restrictions. A qualified small employer HRA may be offered by employers with fewer than 50 full-time and full-time-equivalent employees that do not offer a group health plan to any of their employees. There are additional requirements that must be met, including:
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The HRA must be provided on the same terms to all eligible employees of the small employer. Exclusion of certain employees specified under the Act is permitted.
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The HRA must be funded solely by the employer. No salary reduction contributions are permitted.
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The HRA must provide for the reimbursement or payment of expenses for medical care for the employee or the employee’s eligible family members after the employee provides proof of coverage.
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The maximum reimbursement or payment available under the HRA cannot exceed $4,950 for employee-only coverage or $10,000 for family coverage in any year. This limit will be prorated for partial year coverage and will be increased annually for inflation.
Employers must also provide a notice containing certain required information to eligible employees no later than 90 days before the beginning of each year in which a qualified small employer HRA is offered. Failure to provide the notice will subject the employer to penalties of $50 per employee, up to a maximum of $2,500 per year.
For 2017, the notice may be provided within 90 days after the date of enactment of the Act.
Finally, qualified small employer HRA benefits must be reported on an employee’s Form W-2 each year for calendar years beginning after Dec. 31.
This article first appeared in the Press-Enterprise on Jan. 8, 2017. Republished with permission.
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