21st Century Cures Act re-opens HRAs for some small employers
The 21st Century Cures Act, signed by President Obama on December 13, 2016, will allow certain small employers that do not offer any group health plan to their employees to resume offering Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) to employees that can be used to pay individual health insurance premiums.
The Act becomes effective January 1, 2017, but it provides certain transition relief for any plan year beginning before December 31, 2016.
Eligible small employers are defined as those who are not considered an “applicable large employer” under the Affordable Care Act, which generally is an employer that had 50 or more full-time employees or full-time equivalent employees during the preceding calendar year.
A QSEHRA meets the following conditions:
- The HRA is funded solely with employer contributions.
- The arrangement is offered to all eligible employees on the same terms; however, an employer can exclude employees with less than 90 days of service, certain part-time and seasonal employees, certain collectively bargained employees, and non-resident aliens.
- The plan can only pay or reimburse for documented health care expenses incurred by the employee (or the employee’s family member), including premiums for individual health insurance, so the employer will need to both capture and retain theses records.
- The maximum annual benefit is $4,950 for employee-only coverage and $10,000 for family coverage.
Prior to passage of the Cures Act, the ACA prohibited employers from offering stand-alone HRAs because the arrangement did not comply with many of the ACA’s market reforms, including the requirement to provide first-dollar coverage of preventive services and the prohibition on lifetime and annual limits. The IRS had previously released guidance that reiterated this prohibition and imposed an excise tax of up to $36,500 for failures to comply with the rule.
The new law under the Cures Act provides that QSEHRAs will not be considered group health plans for ACA compliance purposes which means certain small employers may resume offering their employees a plan that allows the employees to use the funds to purchase individual health insurance.
Employers must report employee HRA contributions on the Form W-2 (but the amount is normally not treated as taxable wages) and the employer must also send a Form 1095-B to each eligible employee and transmit the Form 1095-Bs to the IRS by completing and filing a Form 1094-B. In addition, the employer should inform employees that the amount of the reimbursement should be disclosed when applying for any subsidies under the Exchange. Finally, there is also an annual notice requirement that must be provided 90 days before the beginning of each year or when employees become eligible.
For some employers, the operational requirements and financial restrictions of a QSEHRA might be too much, while for others this might present the best possible avenue to provide employees with assistance toward having health insurance coverage. Please contact your WK advisor at (573) 442-6171 or (573) 635-6196 to discuss and evaluate this new opportunity.
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