Qualified Small Employer HRA’s; 21st Century Cures Act

On December 13, 2016, the 21st Century Cures Act (Cures Act) introduced a new type of tax-preferred arrangement called the Qualified Small Employer Health Reimbursement Arrangement (QSE HRA) that small employers may use to help their employees pay for medical expenses.

Under the Cures Act, the QSE HRA is not a group health plan. A QSE HRA is an arrangement offered by an eligible employer that meets the following criteria:

  • The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement.
  • The arrangement provides, after the employee provides proof of coverage for the payment to, or reimbursement of, an eligible employee for medical care expenses incurred by the employee or the employee’s family members (as determined under the terms of the arrangement).
  • The amount of annual payments and reimbursements do not exceed $4,950 ($10,000 for family) with amounts to be indexed for increases in cost of living.
  • The arrangement is provided on the same terms to all eligible employees of the eligible employer.

To be an eligible employer that may offer a QSE HRA, the employer may not be an applicable large employer (ALE) and may not offer a group health plan to any of its employees.

The Departments’ prior guidance concluded that employer payment plans (EPPs) and non-integrated health reimbursement arrangements (HRAs) are group health plans that fail to comply with the group market reform requirements that prohibit annual dollar limits and that require the provision of certain preventive services without cost sharing.

Because a QSE HRA is statutorily excluded from the definition of a group health plan, the group market reform requirements do not apply to a QSE HRA. With respect to EPPs and HRAs that do not qualify as QSE HRAs, the Departments’ prior guidance continues to apply.

The statutory exclusion of QSE HRAs from the group health plan definition is effective for plan years beginning after December 31, 2016. With respect to plan years beginning on or before December 31, 2016, the Cures Act provides that the relief under IRS Notice 2015-17 applies.

Under the extension provided by the Cures Act, for plan years beginning on or before December 31, 2016, the tax penalty will not be asserted for any failure to satisfy the market reforms by EPPs that pay, or reimburse employees for, individual health policy premiums or Medicare Part B or Part D premiums, with respect to employers otherwise eligible for the relief under Notice 2015-17. These employers are not required to file IRS Form 8928 solely because they had such an arrangement for the plan years beginning on or before December 31, 2016.

The Cures Act’s extension of the relief is limited to EPPs and does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums. Also, as an employer-provided group health plan, coverage by an HRA or EPP that is not a QSE HRA and that is eligible for the extended relief under the Cures Act would be minimum essential coverage. This means that a taxpayer would not be allowed a premium tax credit for the Marketplace coverage of an employee, or an individual related to the employee, who is covered by an HRA or EPP other than a QSE HRA.

Practically speaking, the Departments’ prior regulations and guidance continue to apply to EPPs and HRAs that do not qualify as QSE HRAs, including arrangements offered by employers that are not eligible employers as defined under the Cures Act, such as ALEs.

For more information see Qualifying Small Employer  Health Reimbursement Accounts FAQ


This information is general and is provided for educational purposes only. It reflects UBA’s understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.


 

 

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