“CURES ACT” Authorizes Small Employers to Reimburse Employees for Health Insurance Costs

health insurance costsOne major area of confusion and annoyance created by the Affordable Care Act (the “ACA”) has finally been put to rest with the enactment of the 21st Century Cures Act on December 13, 2016 (the “Cures Act”).  Many small employers were chagrined by the IRS pronouncement in 2013 (IRS Notice 2013-54) that the ACA prohibited their long time practice of reimbursing and/or paying for health insurance policies purchased by their employees on the individual healthcare market.  The IRS labeled these arrangements “employer payment plans” and stated that they were no longer permitted because they violated certain market reforms created by the ACA.

Many small employers continued to offer employer payment plans which triggered the release of Notice 2015—17 which provided transition relief from excise taxes to small employers who still offered employer payment plans to their employees.  This transition relief has now been extended to all plan years prior to January 1, 2017.  Commencing January 1, 2017, small employers – i.e., those with fewer than 50 full time or full time equivalent employees – may again offer a variation of the employer payment plan without running afoul of the ACA.

The relief created by the Cures Act is not a full return to the past, however.  There are benefit limitations, written notice requirements, and possible penalties that did not exist for employer payment plans prior to the enactment of the ACA.  Below is a description of some of the aspects of the new limitations, requirements and penalties under the Cures Act.

The reimbursements must be offered through a "Qualified Small Employer Health Reimbursement Arrangement (‘Qualified Small Employer HRA’)".  The Cures Act does not require that the Qualified Small Employer HRA be in writing, but it is prudent to have a written plan document so that participants clearly understand what the Qualified Small Employer HRA can and cannot do. The maximum reimbursement for individual coverage is $4950, and $10,000 for family coverage.  These limits will be adjusted for inflation in $50 increments in future years.

The Qualified Small Employer HRA must be the only "health plan" offered by the employer.  It is not clear whether an employer may offer excepted benefit plans like dental and vision plans and flexible spending plans funded with employee contributions along with a Qualified Small Employer HRA.

A Qualified Small Employer HRA must be offered to all eligible employees. Employees who are part-time, seasonal, or under age 25 may be excluded from participation.  Additionally, new employees can be required to wait 90 days before being eligible to receive reimbursements under the Qualified Small Employer HRA.

Reimbursements may only be made for insurance policies purchased on the individual insurance market, including an insurance exchange established under the ACA.  So premiums for group health policies offered by the employer of an employee's spouse may not be reimbursed.  Reimbursements may also be made for other medical expenses as defined under Section 213(d) of the Internal Revenue Code.

Employers offering a Qualified Small Employer HRA must provide a written notice to eligible employees not later than 90 days before the beginning of the year.  For Qualified Small Employer HRAs set up in 2017, the Notice must be given by the earlier of March 13, 2017 (i.e. 90 days after the date of enactment) or the 90th day prior to the first date of coverage under the Qualified Small Employer HRA.  The notice must contain the following statements:

  1. the amount of reimbursement available under the Qualified Small Employer HRA (the “Benefit Amount”);
  2. the eligible employee should provide the Benefit Amount to any health insurance exchange to which he or she applies for advance payment of the premium assistance tax credit; and
  3. if the employee is not covered under minimum essential coverage for any month the employee may be subject to a tax for such month and the reimbursements under the arrangement may be includible in gross income.

Failure to provide the written notice could result in a penalty to the employer of $50 per employee per incident up to a maximum of $2500 in a calendar year.

For more information about the Qualified Small Employer Health Reimbursement Arrangement contact Attorney Sharon Freilich, sfreilich@pullcom.com

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