President Obama has signed into law the 21st Century Cures Act, which, among other things, allows small employers to offer new "qualified small employer health reimbursement arrangements" to reimburse employees for qualified medical expenses, including individual health insurance premiums, for years after December 31, 2016. Small employers are defined as those with fewer than 50 full-time equivalent employees who do not offer a group health plan.
Under prior agency guidance, stand-alone HRAs (except for retiree-only HRAs and HRAs consisting solely of excepted benefits) and HRAs used to purchase coverage on the individual market are considered group health plans that do not comply with certain market reforms of the Affordable Care Act. As a result, these HRAs may be subject to a $100 per day excise tax per applicable employee under the federal tax code.
New Law Creates Qualified Small Employer HRAs
The 21st Century Cures Act exempts so-called qualified small employer HRAs from the ACA’s market reforms. To be a qualified small employer HRA, the arrangement generally must:
Definitions of 'Eligible Employer' and 'Eligible Employee'
Under the law, the term 'eligible employer' means an employer that has fewer than 50 full-time equivalent employees and does not offer a group health plan to any of its employees. Thus, large employers and employers who offer a group health plan must still comply with the prior agency guidance.
The law defines an 'eligible employee' as any employee of an eligible employer. Employers may, however, exclude employees who:
Employer Notice & Reporting Requirements
An employer funding a qualified small employer HRA for any year must provide a written notice to each eligible employee that includes the following information:
In addition, effective for years beginning after December 31, 2016, an employee's total permitted benefit for the year must be reported on his or her Form W-2.
Prior Transition Relief Also Extended
Previously, IRS Notice 2015-17 provided transition relief from the assessment of excise taxes to small employers who reimbursed, or directly paid, the premium for an employee's individual health insurance policy (these arrangements are referred to as "employer payment plans"). The 21st Century Cures Act has extended this relief, which previously expired on June 30, 2015, to any plan year beginning on or before December 31, 2016. Employers are strongly advised to consult knowledgeable benefits counsel to determine whether a particular arrangement is entitled to this extended relief. Read the 21st Century Cures Act in its entirety.
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Source: HR 360, Inc.
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