On December 20th, the Department of Labor (DOL) updated guidance regarding the use of Health Reimbursement Arrangements (HRA) by small businesses for the reimbursement of qualifying medical expenses, including individual health insurance premiums. The guidance change was issued following passage of the 21st Century Cures Act on December 13th.
While the Cures Act was primarily designed to advance research on a range of medical problems, it also included language from another bill which reintroduces the HRA as a mechanism by which small employers may reimburse individual health insurance premiums through a mechanism called a “Qualified Small Employer Health Reimbursement Arrangement” (QSEHRA).
Prior to guidance issued in 2013 by the IRS (Notice 2013-54) and the DOL (Technical Release 2013-03) reimbursement of individual health insurance premiums through an HRA was widely viewed as a potential means for some small businesses to subsidize employee health insurance costs without the cost or complexities of a Group Health Plan (GHP). However, under the 2013 guidance an employer providing such a reimbursement arrangement could have been liable for substantial fines and penalties. Furthermore, an employer could not sponsor a “standalone” HRA to assist employees with out of pocket medical expenses as it would not meet the coverage requirements under the ACA.
An eligible employer may not be an applicable large employer (ALE) as defined by the ACA. Eligible small employers may establish a QSEHRA effective January 1, 2017 subject to the following requirements:
The maximum reimbursement for health expenses that small employers may provide through QSEHRAs is $4,950 for single coverage and $10,000 for family coverage. Annual amounts will be adjusted for inflation.
A small employer that provides a QSEHRA must offer it to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.
Generally, an employer must make the same QSEHRA contributions available to all eligible employees. However, as the cost of coverage through the individual health insurance market may vary based on factors such as age, location and family size, the actual reimbursement may vary.
The guidance is available by clicking here and proceeding to Q3.
