The 21st Century Cures Act and Its New HRA Provisions for Small Businesses

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The 21st Century Cures Act has been signed into law. The act will let small businesses (non ALE) to reimburse employees who purchase individual health plans on the open market.

It might be too late in the game for many employers making plans for 2017 (there is a 90 day transition relief in the bill), but the act will take effect for plan years beginning after Dec 31, 2016. Even if you cannot implement for the 2017 year, it’s a good option to know about for future plan years.

Congress passed the bill Dec. 7, and Obama signed into law Dec. 13. The bill was primarily focused on speeding up drug approval and making innovation in the medical space more accessible. But it also contained some major updates that affect employer-provided health benefits.

The Obama administration had previously closed the door on the ability for employers to just provide money on a pretax basis for employees to purchase their own health insurance. Needless to say, many employers weren’t too happy about this. That’s why this act is a welcome change for many employers. This previous article outlines the limitations that were placed on employers who wanted to reimburse their employees for health insurance premiums prior to this act.

The new law contains provisions allowing small businesses to use HRAs to pay for non-group plan premiums. It creates a new type of HRA—the qualified small employer health reimbursement arrangement (QSEHRA).

Introducing New Qualified Small Employer HRAs:

  • The maximum reimbursement for health expenses that small employers can provide through employee QSEHRAs is $4,950 for single coverage and $10,000 for family coverage, to be adjusted annually for inflation.
  • Small employers that choose to provide QSEHRAs must offer them to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.
  • Generally, an employer must make the same QSEHRA contributions for all eligible employees. However, amounts may vary based on the price of an insurance policy in the relevant individual health insurance market, which in turn can be based on the age of the employee and eligible family members, or the number of family members covered.

The details in list above were provided by this SHRM article

Even after looking into the limitations of this new option, this is a welcome change and provides small employers greater flexibility in terms of benefit offerings. Eligible employers can now use HRAs to help employees purchase an affordable health insurance plan that fits their individual budget and health care needs.

Two Clarifications

Reimbursement Arrangements for Employee Premiums Are Still Limited

This only means that non-ALEs can use QSEHRA arrangement to reimburse their employees within these new guidelines and eligible situations. They can not offer QSEHRA in addition to a group health plan. It’s either an either/or situation. Employers are still prohibited from reimbursing employees on a pretax basis using other methods for health care premiums.

This is Not an Option for ALEs

So-called applicable large employers—those with 50 or more full-time employees or equivalents—still must comply with the ACA mandate to provide affordable group health coverage to full-time workers, which excludes them from using HRAs to fund employees’ purchase of nongroup plans.

This act affects many different areas of employee benefits and compliance; this article only touches on one of them. There are still many questions related to this new legislation. We will continue to keep you informed as the onslaught of clarifications and guidance are issued in the coming months.

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