Congress passed H.R. 34, which exempts certain health reimbursement arrangements (HRA), including premium-reimbursement plans, from most Affordable Care Act (ACA) requirements for small employers (i.e. those employing less than 50 full-time equivalents).
On December 13th, President Obama signed the 21st Century Cures Act. This legislation establishes a new type of HRA for small employers that do not offer health coverage - known as “Qualified Small Employer Health Reimbursement Arrangements.”
What does this mean for employers?
With this new arrangement, small employers will be able to reimburse employees for premiums for health insurance and other qualified health expenses. This becomes effective in January and it also allows small employers to either partially or fully reimburse employees for individual health insurance premiums (and other medical expenses at the employer’s discretion) without violating ACA market reforms or incurring daily excise tax penalties.
Are there any restrictions?
There are some restrictions with respect to these new HRAs, these include:
- Small employers cannot offer a group health insurance plan in combination with this HRA
- Reimbursements are limited to those Internal Revenue Code §213(d) medical care expenses
- New notice requirements exist
- Employers must fully fund the HRA (employee salary reductions are NOT permitted) and reimbursements must be capped at $4,950 per employee (or $10,000 for family coverage).
More information should become available after more of the legislation becomes known and as this product is rolled out.
Prior Transition Relief Also Extended
IRS Notice 2015-17 previously provided transition relief from the assessment of excise taxes to small employers who reimbursed, or paid directly the premium for an individual employee's heath insurance policy which are also known as "employer payment plans". This relief has been extended due to the 21st Century Cures Act, which expired on June 30, 2015, to any plan year beginning on or before December 31, 2016.