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New Small Employer Health Reimbursement Arrangement

In December of 2016 President Obama signed the 21st Century Cures Act into law.  Included in this law was a provision to allow small employers to establish health reimbursement arrangements (HRAs) for their employees.  Previously, with the passage of the Affordable Care Act, these arrangements were subject to very high penalties as they did not satisfy the minimum essential coverage requirements.  There was relief from these penalties that expired in June of 2015.  The Cures Act now makes that relief effective for all plan years beginning before the end of 2016. Moving forward, a new type of reimbursement arrangement can be implemented.

A qualified small employer health reimbursement arrangement (QSEHRA) can be established.  A few guidelines regarding QSEHRAs:

  1. The definition of a "small employer" is the same as defined in the Affordable Care Act – less than 50 full time equivalent employees
  2. The company does not offer a group health plan
  3. The plan must cover all employees with very limited exceptions
  4. There is a cap to how much each employee can be paid – $4,950 per year for single employees and $10,000 per year for family coverage. Benefits generally must be offered at the same level to all employees
  5. The reimbursement arrangement can pay for medical expenses including health insurance premiums
  6. The amounts paid are deductible by the company but not income to the employee if the employee provides annual proof of minimum essential coverage for them and their family members
  7. Companies must provide an annual notice to eligible employees. The notice states the benefit amount and informs the employee to disclose the benefit to the health insurance exchange if they are receiving advance premium tax credits.

It has been a struggle recently for small employers to offer any assistance with employee health insurance.  The passage of the 21st Century Cures Act provides a valuable option that many small businesses can use to their advantage.  It is likely that in the coming months further guidance will emerge to help with the implementation and administration of QSEHRAs.  For additional information, or to discuss how this could benefit you, please contact your trusted tax advisor.

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