New Small Employer HRA Plans Permitted

December 22, 2016

Under previous IRS guidance, employers were no longer able to reimburse employees for individual medical plan premiums without violating the ACA. This month, President Obama signed the 21st Century Cures Act, which includes a provision for small employers to reimburse employees for premiums or other medical expenses by implementing a qualified small employer health reimbursement arrangement (QSEHRA).

The QSEHRA is subject to the following provisions:

  • The employer has less than 50 full-time employees/full-time equivalent employees in the prior calendar year (i.e., not subject to the ACA employer mandate to offer coverage);
  • The employer cannot also sponsor a group health plan;
  • The reimbursement is funded solely by the employer, with no employee salary reductions permitted;
  • The annual reimbursement is limited to $4,950/single coverage and $10,000/family coverage, and is pro-rated for partial year coverage;
  • Reimbursement must be provided on the same terms to each eligible employee, except that the amount can vary based on the price of coverage in the individual health insurance market because of differences in age and number of covered family members; and
  • The employer must provide a notice with certain content to employees within 90 days before the start of each plan year.

This new arrangement will not help our clients that would like to reimburse employees for their own coverage (e.g., out-of-area employees) while continuing to maintain a group health plan. Also, any amount an employee receives from a QSEHRA will likely reduce their eligibility for a health insurance tax credit.

Note that employers of any size can continue to sponsor an HRA that is integrated with a group health plan or that reimburses for retiree-only or excepted benefits (e.g., dental/vision expenses). If you have any questions, please contact your Keller account team.