Insights: Article

The New Small Employer Health Reimbursement Arrangement

By Tonya Rule

December 14, 2016

On Dec. 13, 2016, President Obama signed the 21st Century Cures Act into law, which establishes a new qualified small employer health reimbursement arrangement (HRA) that would reimburse employees for qualified medical expenses. The new eligible HRA would be funded solely by the employer through reimbursing employees for qualified medical expenses, including certain health premiums.

Here are some of the important details of the act as it relates to the new HRAs:

Effective Date
Effective for plan years beginning after Dec. 31, 2016, for small employers who do not offer a group health plan to their employees. Small employers are defined as employers with fewer than 50 FTE (full-time equivalent) employees. 

Eligible Employees
If established, the HRA must be provided to all employees. Eligible employees are employees who have worked more than 90 days and are over the age of 24. It does not include part-time or seasonal employees, employees covered by collective bargaining units and certain nonresident aliens. It's important to note that the definition of part-time employees is different from other ACA definitions in that a part-time employee is someone working less than 35 hours a week if other employees in similar situations work more hours. 

The HRA is funded solely by the employer. No employee salary reduction contributions are allowed. Any HRA reimbursements need to be substantiated by the employee prior to payment.

Transition Relief
Transition relief as it relates to Notice 2015-17 will extend to amounts that were reimbursed for plan years beginning prior to Dec. 31, 2016. This means there will be penalty relief for small employers who reimbursed individual premiums from plan years with a starting date prior to Dec. 31, 2016.

Maximum Reimbursement Levels
Maximum HRA reimbursement levels are $4,950 for single employees and $10,000 for family plans. This amount is prorated per month if the plan is less than 12 months. The HRA must not be discriminatory.  The amount can vary based on age of the employee and eligible family members as well as the number of eligible family members.

Notification Requirements
If a small employer HRA is established, a notice must be given to all eligible employees no later than 90 days before the beginning of such HRA. The notice must contain the following:

  1. The eligible employees permitted benefit amount.
  2. A statement that the employee should disclose the permitted benefit amount to any health insurance exchange to which the employee applies for advance payment of premium assistance credit.
  3. A statement that if the employee doesn't have minimum essential coverage for any one month, the employee can be subject to the shared responsibility payment and the HRA reimbursement amount may be included in the employee's gross income.

No Double Benefit
There will not be a double benefit allowed to an employee.  If the amount received from the HRA is deemed affordable, then the employee will not be allowed to receive an advanced premium tax credit.

W-2 Reporting
W-2 reporting of the HRA total permitted benefit will be required for calendar years beginning after Dec. 31, 2016.

Latest Insights

December 12, 2018
A focus on simplicity in transfer pricing is much easier, accurate, and supportable than the alternative. Review a recent case to learn more about how it works.
December 12, 2018
Learn more about the most common taxes encountered by businesses including income, franchise, gross receipts, sales and use taxes. Knowing when your business has established nexus is important and can help keep you in compliance and minimize your…
December 11, 2018
Long-term employees sometimes don’t offer the security you think they do.
December 11, 2018
This video outlines key considerations for businesses as they work to comply with the new sales and use tax rules.
December 10, 2018
For most of November, the stock market was plagued by the same skepticism evident in October: the sense that corporate profits were declining and economic growth was slowing.
December 7, 2018
Just what is “comprehensive wealth planning?” As you invest and save for retirement, you will no doubt hear or read about it – but what does that phrase really mean? Just what does comprehensive wealth planning entail, and why do knowledgeable…
December 6, 2018
Paying off a major debt produces a sense of relief. You can celebrate a financial milestone; you can “pay yourself first” to greater degree and direct more money toward your dreams and your financial future rather than your creditors.
December 3, 2018
Flexibility is certainly an aspect of forensic accounting, but in ways many people and organizations overlook or perhaps are just unfamiliar with.
December 3, 2018
Think audits are just for identifying financial and regulatory problems? Think again! Performance audits can improve the efficiency and effectiveness of operations.