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Qualified Small Employer HRA

Posted on December 5th, 2016

The U.S. House of Representatives recently passed a bill that is being referred to as the 21st Century Cures Act. The bill is expected to be taken up by the Senate this week, and the belief is the Senate will pass it as well. If passed by the Senate, it appears President Obama would sign the bill into law. 
 
The 996-page bill primarily focuses on medical research and healthcare innovations, but there are 16 pages in the bill that would provide for a new type of Health Reimbursement Arrangement (HRA), referred to as a Qualified Small Employer HRA. This bill would give small employers the ability to establish an HRA without a group health plan, and the HRA could reimburse all Code Section 213(d) expenses, including individual health insurance premiums. For an employer to be eligible to offer this type of HRA:
 
1) They must not be an applicable large employer (in other words, they must not be subject to the Employer Mandate); and
2) The employer must not offer a group health plan to any of its employees.
 
Qualified Small Employer HRAs would have some unique attributes which don’t apply to other types of HRAs. A summary of some, but not all, of these attributes has been listed below.
 
  • Subject to an annual reimbursement limit of $4,950 for single coverage and $10,000 for family coverage, and adjusted each year for inflation.  
  • Reimbursements limits could only vary based on the number of family members and age (which are significant factors in determining individual health insurance premiums).
  • The annual reimbursement limit would have to be pro-rated on a monthly basis for employees who are not covered by the HRA for the entire year. 
  • Reimbursements would be taxable to the employee if they don’t have minimum essential coverage. 
  • Access to subsidies in the Exchange will be eliminated or reduced by the amount available for reimbursement through the HRA.  
  • Employers offering this type of HRA will need to provide a statement to employees which indicates 1) the amount available through the HRA, 2) instructs the employee to provide the statement to the Exchange when applying for a subsidy, and 3) indicates reimbursements are taxable if the employee doesn’t have minimum essential coverage.  
 
Assuming Qualified Small Employer HRAs become a reality, they will be available to employers for plan years beginning on or after January 1, 2017. Stay tuned as this legislation is expected to move quickly.   
 

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