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ACA UPDATE: HRA Rules Change for Small Employers

Employee Benefits, Small Business

Cures Act provision opens door for change

On December 13, 2016, President Obama signed the 21st Century Cures Act into law. The 21st Century Cures Act is a wide-ranging law which includes mental health reform language, changes to Food and Drug Administration regulations and funding for cancer research.

The law also contains language which allows small employers (defined as employers with less than 50 full-time and full-time equivalent employees) to utilize Health Reimbursement Arrangements (HRAs) to assist employees with purchasing individual health plans.

In previous guidance, the federal government essentially banned employers from using stand-alone HRAs to provide monetary assistance for employees to purchase health insurance on the individual market (IRS Notice 2013-54). This law essentially reverses these rules for small employers by creating a new type of HRA – the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

In order for an employer-sponsored HRA to qualify as a QSEHRA, the following specifications must be followed:

  • Organizations that offer a QSEHRA, must offer them to all full-time employees. Exceptions include:
    • Employees who have not completed 90 days of employment service.
    • Employees under the age of 25.
    • Employees covered by a collective bargaining agreement for health and accident benefits.
    • Part-time and seasonal workers.
    • QSEHRA contributions must be the same for all eligible employees. Reimbursement amounts may vary based on insurance costs which are age and family size dependent.
  • Employers who sponsor a QSEHRA must provide a notice to employees at least 90 days prior to the beginning of the plan year informing them of:
    • the amount of benefit,
    • the employees’ obligation to notify the exchange of the benefit if receiving premium tax credits,
    • the benefit does not provide Minimum Essential Coverage (MEC) and therefore employees could be subject to the individual mandate tax, and
    • reimbursements may be includible in gross income
  • An employer who makes offers a QSEHRA is not required to make an offer of COBRA for the QSEHRA.
  • The annual maximum reimbursement limits for a QSEHRA are: $4,950 single; $10,000 family. The maximum amount is scheduled to be adjusted annually.

This law is effective for plan years beginning after December 31, 2016 only for small employers. Large employers are still required to integrate HRAs with group health plans.

Key Takeaway

The QSEHRA provides small-employers (groups with under 50 FTEs) another option for providing their employee population with health insurance. We suggest you work with your insurance expert to identify whether a QSEHRA meets your needs.

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