In a rare example of bipartisan effort to correct a problem created by the Affordable Care Act, Congress passed and President Obama signed the “21st Century Cures Act” (Public Law No. 114-255) into law in December 2016. Among other things, the law allows small employers, including public employers, with fewer than 50 full-time employees to create a new form of health reimbursement account (“HRA”) to help their employees pay for certain medical expenses. The new HRA can be used to reimburse employees for qualified out-of-pocket medical expenses and for non-group plan health insurance premiums, including plans purchased on public health care exchanges under the Affordable Care Act.
The law essentially relieves small employers from IRS Notice 2013-54 and DOL Technical Release 2013-03, which prohibit use of so-called “stand-alone HRAs” to reimburse employees who buy non-group health insurance coverage or incur other health care costs. Employers who provided such reimbursement arrangements after 2013 were subject to penalties of $100/day/employee for attempting to help their employees with their health care expenses.
The 21st Century Cures Act creates a new type of HRA—the “qualified small employer health reimbursement arrangement” (QSEHRA). The QSEHRA must be funded solely by the employer, with no employee salary reductions. The legislation allows for maximum annual reimbursement for employee health expenses through a QSEHRA of up to $4,950 for single coverage and $10,000 for family coverage (adjusted annually for inflation), prorated for part-year participation. Small employers that choose to provide QSEHRAs must offer them to all eligible 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. A QSEHRA is not available if the employer offers group coverage to any of its employees.
Employers that choose to fund a QSEHRA must provide a detailed written notice to each eligible employee at least 90 days before the beginning of each year in which it is offered. Employers that wish to offer a QSEHRA in 2017 can take advantage of “transition relief” by issuing written notices on or before March 17, 2017.