In December, Congress passed the 21st Century Cures Act. The
long and complex bill covers a broad range of health care topics, but of
particular interest to some businesses should be the Health Reimbursement
Arrangement (HRA) provision. Specifically, qualified small employers can now
use HRAs to reimburse employees who purchase individual insurance coverage,
rather than providing employees with costly group health plans.
The need for HRA relief
Employers can use HRAs to reimburse their workers’ medical
expenses, including health insurance premiums, up to a certain amount each
year. The reimbursements are excludable from employees’ taxable income, and
untapped amounts can be rolled over to future years. HRAs generally have been
considered to be group health plans for tax purposes.
But the Affordable Care Act (ACA) prohibits group health plans
from imposing annual or lifetime benefits limits and requires such plans to
provide certain preventive services without any cost-sharing by employees. And
according to previous IRS guidance, “standalone HRAs” — those not tied to an
existing group health plan — didn’t comply with these rules, even if the HRAs
were used to purchase health insurance coverage that did comply. Businesses
that provided the HRAs were subject to fines of $100 per day for each affected
employee.
The IRS position was troublesome for smaller businesses that
struggled to pay for traditional group health plans or to administer their own
self-insurance plans. The changes in the Cures Act give these employers a third
option for providing one of the benefits most valued by today’s employees.
The QSEHRA
Under the Cures Act, certain small employers can maintain
general purpose, standalone HRAs that aren’t “group health plans” for most
purposes under the Internal Revenue Code, Employee Retirement Income Security
Act and Public Health Service Act.
More specifically, the legislation allows employers that aren’t
“applicable large employers” under the ACA to provide a Qualified Small
Employer HRA (QSEHRA) if they don’t offer a group health plan to any of their
employees. Annual benefits under a QSEHRA:
- Can’t 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 be used for only IRC Section 213(d) medical care.
QSEHRA benefits must be offered on the same terms to all “eligible
employees” (certain individuals can be disregarded) and may be excluded from
income only if the recipient has minimum essential coverage. There is a notice
requirement and employees’ permitted benefits must be reported on Form W-2.
If you’re interested in exploring the QSEHRA option for your
business, contact us for further details.
© 2017
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