On Dec. 13, the 21st Century Cures Act was signed into law. The act allows small employers that do not maintain group health plans to establish stand-alone health reimbursement arrangements (HRAs), effective for plan years beginning on or after Jan. 1, 2017. This new type of HRA is called a “qualified small employer HRA.”
Due to the Affordable Care Act (ACA), most stand-alone HRAs have been prohibited since 2014. This new law creates a special exception for small employers that are not subject to the ACA’s employer shared responsibility rules. Instead of offering a group health plan, small businesses may use a qualified small employer HRA to reimburse employees’ out-of-pocket medical expenses, including their premiums for individual health insurance coverage, on a tax-free basis. However, an employee cannot get subsidies (Advance Premium Tax Credit) from the government to lower the cost of their health insurance premiums AND receive funds through a tax free qualified HRA. Sorry folks!
Small employers that do not sponsor group health plans may want to consider implementing a qualified small employer HRA to help their employees pay for out-of-pocket medical expenses. Because there are specific design requirements for these HRAs, including a maximum benefit limit and an employee notice, small businesses should work with their advisors to make sure their HRAs are compliant. Like all HRAs, a qualified small employer HRA must be funded solely by the employer. Employees cannot make their own contributions to an HRA, either directly or indirectly through salary reduction contributions.
To be eligible to offer a qualified small employer HRA, an employer must meet the following two requirements:
- The employer is not an applicable large employer (ALE) that is subject to the ACA’s employer shared responsibility rules. In general, this means that the employer must have fewer than 50 full-time employees, including full-time equivalents.
- The employer does not maintain a group health plan for any of its employees.
HRA Design Requirements:
The maximum benefit available under the HRA for any year cannot exceed $4,950 (or $10,000 for HRAs that also reimburse medical expenses of the employee’s family members). The maximum dollar limits must be prorated for individuals who are not covered by the HRA for the entire year. FBN
By Ed Gussio
As we enter the New Year, we will be celebrating 20 years at Benefit Logic and we thank our wonderful customers!
For more information, or for other innovative employee benefit options, call the team at Benefit Logic-928-526-5691. Happy New Year!