With President Obama recently signing into law the 21st Century Cures Act, small schools, cities and counties will be able to offer stand-alone HRAs (Health Reimbursement Arrangements) to their employees to reimburse for the employee’s health insurance policy, if certain conditions are met. In addition to the HRA provisions, the 21st Century Cures Act contains a variety of healthcare provisions including providing additional monies for biomedical research, speeding up the approval of new drugs/devices, improving mental health care and combating opioid abuse. This article will focus on the 21st Century Cures Act for small schools, cities and counties.
The provision within the 21st Century Cures Act allows eligible small employers to offer a qualifying stand-alone HRA. It can be used to reimburse employees for qualified medical expenses, including health insurance premiums. The QSEHRA will be effective for plan years beginning after December 31, 2016.
This provision overturns guidance issued by the Internal Revenue Service and the Department of Labor that previously stated that these arrangements did not comply with the Affordable Care Act since an HRA, by design, has annual limits and does not reimburse for all preventative care expenses, requirements of group health plans under the Affordable Care Act. While this still holds true for large employers, the Act changes this for small employers.
Employer Requirements for QSEHRAs
Additional QSEHRA Details
As with all HRAs, employees, spouses and dependents are not eligible for health insurance premium tax credits for any month they are provided reimbursement from a QSEHRA. The HRA reimbursement would be considered affordable coverage under the Affordable Care Act (ACA).
If an employee uses the QSEHRA funds to purchase an insurance plan that does not provide minimum essential coverage under the ACA, the reimbursement amount is subject to income tax and may be included in the employee’s gross income.
Retroactive transition relief from penalties has been granted to small employers who continued to reimburse employees for medical expenses since June 30, 2015 (this was the last date the IRS had extended transition relief through).
If an employer chooses to offer a QSEHRA, they must provide a written notice to all eligible employees, provide this statement at least 90 days before the beginning of the plan year and include the following information:
For more information on HRAs, contact your NIS Representative.
So this is for the private sector too? The article’s title refers to municipalities and public schools, but then does not really mention specifically how these entities benefit from the new plan. Instead, it sounds more like small employers (>50 EEs) of any kind are eligible for the plan. If so, 2 questions:
Does the employer get a tax write off for the reimbursements?
Can the employee still use an HSA?
Yes, this also applies to the private sector. With the HRA, both the employer and employee save FICA taxes and the employee does not pay income tax on reimbursements as long as used for eligible medical expenses. If an employee or an employee’s spouse is contributing to an HSA, the HRA would need to be limited to dental, vision, post-deductible, and premium expenses while contributing.