How the New Stand Alone HRA Law Will Affect Small Employers

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Stand Alone HRA

On December 13, 2016, President Barack Obama signed the 21st Century Cures Act into law. This law allows small businesses the opportunity to sponsor a stand alone HRA (health reimbursement arrangements ) to fund employees who wish to purchase individual health plans through the free marketplace. While the larger bill focuses on improving the speed with which drugs are approved by the FDA, a provision within the bill has a direct effect on employer-provided health benefits. Small employers will now be able to pay for nongroup plan premiums using HRAs.

Who’s Eligible?

Before small employers deviate from the ACA law, clarification is needed.
Small employers with fewer than 50 full-time employees or full-time employee equivalents without a group health plan may now fund their employee HRAs to pay for out-of-pocket qualified medical expenses along with nongroup plan health insurance premiums.
Previously, the ACA restricted employers from providing money on a pretax basis for employees to buy their own health insurance through an open market. This new 21st Century Cures Act, integrates important components of the Small Business Healthcare Relief Act to breed a new form of HRA—a qualified small employer health reimbursement arrangement (QSEHRA).

What is the QSEHRA?

This new form of HRA provides specific benefits and regulations for small employers. These include:

  • A maximum reimbursement of health expenses of $4,950 for single coverage and up to $10,000 for family coverage, and a provision for inflation adjustment.
  • Employees are not allowed to contribute to the HRA either directly or indirectly through salary reductions.
  • Maximum dollar amounts are prorated for those who are not covered by their QSEHRA throughout the entire year.
  • Employees who have not yet worked for their employer for 90 days, are younger than 25, or who are covered by collective bargaining agreements for health benefits and accidents, part-time and seasonal workers are not covered under the QSEHRA.

How Small Employers Benefit

While the law goes into effect for coverage staring Jan. 1, 2017, it can prove beneficial for employers in the coming years. Small employers who are eligible under the new law can expect multiple benefits.
Employers no longer have to worry about penalties from the Internal Revenue Service or Department of Labor when using a stand alone HRA to fund their employee’s health care. This naturally leads to more flexibility in terms of benefit offerings while simultaneously allowing employers to help employees find and purchase affordable insurance plans that fit their needs.
Instead of being locked into one group or another, small employers can now provide either group market insurance or individual market insurance, with both providing tax advantages. With some 40 million Americans employed through small businesses, this will undoubtedly play a major role in keeping health care affordable.

Important Facts to Remember:

  1. Notice of the availability of a QSEHRA must be offered to employees some 90 days before the start of the new year, or the beginning of their eligibility. Issuing a notice in 2017 may be done as late as March, 13, 2017.
  2. Contribution amounts must be set according to the following:
    Terms must be the same for each employee. Employers that offer 50 percent of premiums for employees and dependents, employees with a spouse and children could receive more reimbursement than one without dependents—this is legal. Employers cannot, however, pay 100 percent of premiums for their managers and 50 percent for their lower-earning employees.
    The entire cost of the QSEHRA benefit must be covered by employers. It is illegal to reduce the pay of employee’s if they accept the QSEHRA benefit.
    Maximum annual benefit caps must be kept. Prorated annual maximums must be kept up with, and monthly contributions cannot be exceeded or increased based on when an employee began working.
  3. Large employers are excluded from the law. Any company with more than 50 full-time employees or equivalents may not benefit from the QSEHRA law.
    For further information about the 21st Century Cures Act, please contact the HCI team today.
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