Affordable Care Act Alert – HRA Policy Change for Qualified Small Employers

As of Wednesday December 7, 2016 both the US House and Senate have passed the 21st Century Cures Act. The act, which has been openly supported by the White House (White House statement here), includes many provisions, among which is a policy change effecting the applicability of Healthcare Reimbursement Arrangements (HRA’s) to small and mid-sized employers.

BACKGROUND: From the 1960’s until 2015, HRA’s were used by employers who did not offer group health plans as a way to reimburse employees who purchased non-group individual or family insurance coverage.

Beginning in 2015 the Affordable Care Act (ACA) and related IRS pronouncements made HRA’s outside of a full-coverage group health plan subject to IRC section 4980D penalties of $100 per employee per day ($36,500 per employee per year).

NEW DEVELOPMENTS: Section 18001 of the 21st Century Cures Act removes the applicability of the IRC section 4980D penalties for “Qualified Small Employers Health Reimbursement Arrangements” under certain circumstances. These circumstances include:

  • The employer is below the 50 employee (FTE) ACA threshold
  • The HRA is available to all eligible employees on the same terms (i.e. different options or amounts cannot be offered to different employees)
  • The HRA is funded solely by the employer, no salary reduction contributions by the employee
  • Proof of coverage or medical cost must be provided to the employer to support the reimbursement
  • Annual reimbursements must not exceed $4,950 (single) or $10,000 (family)
  • Applicable for tax years starting on or after January 1, 2017

This recent development may impact small and medium sized employers who are still in the process of determining 2017 benefits structures.

If you have questions related to this or any other topic please contact James F. Eaton, III, CPA/PFS, MBA or Michael J. Agetstein, CPA/PFS.

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