President Barack Obama recently on December 13, 2016 signed 21st Century Cures Act into law, and the bill was rushed to get signed by the President to speed up the drug approvals and making innovative treatments more accessible. But it also provides an advantage to the small employers in regards to Affordable Care Act. The new law allows small business owners to utilize health reimbursement arrangements (HRAs) to fund employees those who purchase the individual health plans on the open market.

 

Federal agencies rule in IRS Notice 2013-54 and DOL Technical Release 2012-03 did cause frustration for many small employers by preventing them from using the “stand-alone HRAs” to reimburse employees those who buy non-group health insurance coverage. The 21st Century Cures Act now incorporates crucial key elements of the proposed Healthcare Relief Act. A new type of HRA is created known as the qualified small employer health reimbursement arrangement (QSEHRA). The legislation states the following:

 

  • Maximum reimbursement for health expenses that small employers can provide through employee QSEHRAs is $4,950 for single coverage and $10,000 for family coverage to be annually adjusted for inflation.

 

  • Small employers those choose to provide QSEHRA must also offer them to all the full time employees but except for those who have not yet completed their service of 90 days, are under the age of 25 or who are covered by the collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.

 

  • In general, an employer must make the same QSEHRA contributions for all eligible employees. However, amounts may vary depending on the price of an insurance policy in the relevant individual health insurance market, which can be based on the age of the employee and eligible family members or the number of family members covered.

 

This new law takes effect for plan years beginning after December 31, 2016. Although the new law may be late for employers those who already made 2017 plans but it is still an open option for those who may would like to take this into consideration for subsequent years. Please take into note, this new law welcomes and overturns the previously issued guidance by the Internal Revenue Service and the Department of Labor that stated HRA arrangements violated the ACA insurance market reforms which subjected many small employers to penalty for providing such arrangements.

 

Lastly, the applicable large employers (50 or more full time employees or equivalents) still must comply with the ACA mandate to provide affordable group health coverage to all full time workers, which eventually excludes them from using HRAs to fund employees’ purchase of non-group plans.

 

More information on this law can be accessed at both of the links below:

  1. SHRM Article
  2. The Bill

 

Thank you for choosing Paylocity as your payroll tax partner. Should you have any questions please contact your Paylocity Account Manager.

 

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a payroll service provider are encouraged to seek the advice of a qualified CPA, tax attorney, or advisor.