On December 13, 2016, President Obama signed the 21st Century Cures Act. Title XVIII of the Act overturns a portion of ACA regulations (IRS Notice 2013-54) that prohibits employers from offering employees standalone health reimbursement arrangements (i.e., HRAs that are not integrated with a group health plan). This change will allow eligible small employers the opportunity to contribute money to HRA accounts of their employees that can be used to pay health insurance premiums as well as deductibles, copayments, and other out-of-pocket medical expenses.
The prohibition on standalone HRAs is lifted somewhat, but only as to small employers who employ fewer than 50 full-time employees. This change does not apply to the ACA’s “applicable large employers” (those with 50 or more full-time (or full-time equivalent) employees) who are subject to the employer mandate.
The law creates “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs) effective January 1, 2017.
Beginning next year, a small employer may provide a QSE HRA as long as the employer does not offer a group health plan. However, in order for an employee to be eligible for a QSE HRA, the employee (and his/her participating family members) must be enrolled in a health insurance plan with minimum essential coverage. These would be health plans purchased on an Exchange or in the individual market from an insurance company. (NOTE: QSE HRAs cannot be provided to employees of a small employer who does offer group health plan coverage to its employees.)
Under this arrangement, the employer may contribute money that provides for payment or reimbursement of health insurance premiums and eligible health care expenses. An employer may contribute up to $4,950 for individual coverage and up to $10,000 for family coverage. Employees are not allowed to make salary reduction contributions to a QSE HRA.
Generally, a QSE HRA must be provided to all eligible employees of the employer on the same terms. However, the law allows variations in employer contributions to the extent insurance policy premiums vary because of age or family size.
QSE HRAs are not considered group health plans so they are not subject to federal COBRA continuation coverage requirements.
All employees of an eligible small employer are eligible except:
• Those with less than 90 days of service;
• Those under age 25;
• Part-time and seasonal employees; and
• Those covered by a collective bargaining agreement if health benefits were the subject of good faith negotiations.
For those who purchase a health insurance policy on an Exchange, premium tax credits will be reduced by the benefit available under the QSE HRA.
Employers are required to provide a notice to eligible employees at least 90 days before the beginning of a year for which they will offer a QSE HRA. For 2017 plan years, the notice must be provided by March 13, 2017 (i.e., within 90 days after enactment of the Act).
More than half of employers with fewer than 50 employees do not offer health coverage to their employees. This change will allow those employers to provide tax-free money to their employees to pay for health insurance coverage purchased on an Exchange or in the individual insurance market. The 21st Century Cures Act provides employers an opportunity to extend affordable healthcare coverage for millions.
Remember, the standalone HRA exception created by the Act is narrow. Small employers that offer their employees group health plan coverage and applicable large employers remain prohibited from offering standalone HRAs. Thus, HRAs offered by these entities must be integrated with a group health plan and amounts contributed by employers to such HRAs cannot be used to pay health insurance premiums.
If you have any questions, please contact Brent Gambill (937-449-5539) or Edie Crump (937-449-5530).