By Kevin Selzer
With the health and welfare benefit plan industry eyeing potential regulatory changes under a Trump administration, President Barack Obama signed into law a new rule that partially restores health plan flexibility restricted by the Affordable Care Act (ACA). The 21st Century Cures Act (Act) allows small employers to establish arrangements that reimburse employees for premiums on health coverage that is not maintained by the employer (e.g., coverage obtained by an employee on a state exchange/marketplace).
Background On HRAs and the ACA
In 2013, the IRS released guidance stating that an employer arrangement designed to reimburse premiums for non-employer maintained health coverage (on a pre-tax or after-tax basis) is a group health plan that violates certain ACA reforms. This guidance was widely viewed to prevent employers from using a health reimbursement arrangement (HRA), integrated with non-employer maintained health coverage, as a way of circumventing the ACA employer mandate (for large employers). However, the guidance applied to all employers, much to the ire of small employers, many of whom relied on these arrangements to provide a pre-tax cost-effective health benefit. Certain transition relief was provided for small employers, but the relief ended in mid-2015. As a result, many small employers were left out in the cold.
Small employers responded in different ways. Some adopted stipend or similar programs, whereby employees would be paid additional taxable compensation without strings attached (i.e., the employee could decide to use the amounts for health coverage or not). The end-result, however, was that tax-favored health benefits were generally limited to employers capable of sponsoring a major medical health plan.
21st Century Cures Act Permits Certain HRAs
The Act permits certain small employers to sponsor arrangements that will reimburse employees on a pre-tax basis (if certain conditions are met) for amounts incurred for independent (non-employer maintained) health coverage, including health insurance premiums. These arrangements, called qualified small employer health reimbursement arrangements (QSEHRAs), must meet the following requirements:
- permitted only for small employers, defined as those who did not have an average of 50 full-time employees, including full-time equivalents, in the prior year;
- the employer may not otherwise offer a group health plan to any employees;
- the employer must offer the QSEHRA to all employees (with certain limited exceptions);
- the maximum annual benefit is $4,950 for reimbursements of employee-only coverage and $10,000 for reimbursements of family coverage;
- the reimbursement will be nontaxable if the eligible employee demonstrates that he or she has minimum essential coverage; and
- the employer must provide eligible employees with notice containing required disclosures.
The rule changes are intended to be effective January 1, 2017.
