New Law Permits Health Reimbursement Arrangements (HRAs) for Small Employers
The New Year will bring additional celebration for small employers. Beginning January 1, 2017, qualified small employers will once again be able to reimburse employees for their individual health insurance premiums. President Obama recently signed the 21st Century Cures Act, which allows qualified small employer health reimbursement arrangements (QSE HRAs) to reimburse individual health insurance premiums. In addition, the Cures Act addresses a number of health care issues including medical research, medical health resources, and combating the prescription and opioid drug epidemic.
Prior to 2014, employers had been permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. Once ACA requirements took effect in 2014 most employers were prohibited from reimbursing individual health insurance premiums for employees, and doing so could have resulted in significant penalties. Under this new law, the Cures Act once again allows employers with less than 50 full-time employees (under ACA counting methods) who do not offer group health plans to use QSE HRAs to reimburse employees for the purchase of individual health care. A number of requirements must be met, including:
- The employer must not be considered an Applicable Large Employer under Code 4980H(c)(2).
- The employer must not offer a group health plan to any employee.
- The QSE HRA must be provided on the same terms to all employees. Variations due to age and number of eligible family members are generally the only variations permitted.
- Reimbursements are limited to $4,950 for individuals and $10,000 for families annually.
- The program must be solely employer funded.
- Form W-2 reporting applies for the amounts reimbursed.
Annual Notice Requirement
For employers who choose to implement the new QSE HRA benefit, there is an annual notice requirement. Written notice must be provided to eligible employees no later than 90 days prior to the beginning of the benefit year that addresses the following:
- The dollar figure the individual is eligible to receive through the QSE HRA.
- A statement that the eligible employee should provide information about the QSE HRA to the Marketplace or Exchange if they have applied for an advance premium tax credit.
- A statement that employees who are not covered by minimum essential coverage (MEC) for any month may be subject to penalty.
Record Keeping and Reporting
Because QSE HRAs can only provide reimbursement for documented healthcare premiums, employers with QSE HRAs should have a method in place to obtain and retain receipts or confirmation for the premiums that are paid with the account. Employers sponsoring QSE HRAs would be subject to ACA related reporting with Form 1095-B as the sponsor of minimum essential coverage.
It is important to note that any efforts by the new President and Congress to repeal and replace the Affordable Care Act may impact these new rules as well. HORAN will continue to monitor and proactively report any regulatory changes impacting the employee benefits industry – stay tuned.
Please contact your HORAN account representative with additional questions.