Summary
President Obama has signed into law the 21st Century Cures Act (Cures Act), that expands funding for medical research. Hidden within the Cures Act is a provision entitled “Exception from Group Health Plan Requirements for Qualified Small Employer Health Reimbursement Arrangements.” Employers with fewer than 50 full-time employees, known as small employers under the Affordable Care Act (ACA)[1], who do not offer (or who cannot afford to offer) employer-provided health care, can now help reimburse medical care expenses or subsidize the cost of health insurance coverage that employees purchase elsewhere, including coverage from the Health Insurance Marketplace.
Before the ACA was enacted, employers frequently helped employees purchase health insurance or reimbursed for medical care expenses through various types of reimbursement arrangements. The ACA does not permit these stand-alone health reimbursement arrangements (HRAs) except under very limited circumstances.[2] HRAs are considered group health plans subject to the ACA’s market reforms that prohibit both annual and lifetime limits on certain benefits. By design, a stand-alone HRA has an annual limitation, thus violating ACA’s market reform requirements. The violation of a market reform mandate will subject the employer to a self-reporting excise tax ($100 per day, per participant). Recognizing that many employers were offering reimbursement programs and other employer payment plans before the ACA was enacted, the IRS and the DOL issued transition relief that permitted some of these arrangements to continue. The Cures Act extends the transition relief previously provided for periods prior to January 1, 2017.
Under the Cures Act, small employers can now establish and offer qualified small employer health reimbursement arrangements (QSEHRAs) which will not be group health plans subject to the ACA market reforms if they satisfy certain statutory requirements. These requirements include, but are not limited to, providing notices to eligible employees and annual limits on reimbursements. While the limits are subject to future adjustment for inflation, the QSEHRA 2017 reimbursement limits are $4,950 for employee-only coverage and $10,000 for family coverage. There is, however, one potential downside. Offering a QSEHRA may impact an employee’s eligibility for premium tax credits and cost sharing reductions if they purchase coverage in the Marketplace. The Cures Act permits QSEHRAs, effective January 1, 2017.
[1] Under the Affordable Care Act (ACA), small employers are not subject to the employer mandate , and are not required to offer health care coverage to their ACA full-time employees (those working, on average, at least 30 hours a week), in order to avoid potential penalties.
[2] Agency guidance clarified that, generally, an HRA could not be offered to employees unless it was integrated with an employer-provided group health plan that independently provided ACA mandated benefits. As an exception, for example, retiree-only HRAs do not have to be integrated with an employer-provided group health plan.
