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. 

Funding
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

September 21, 2018
Article
In the wake of hurricanes, devastating results have been experienced by communities and businesses throughout the Texas Gulf Coast, Caribbean, Florida and southeastern United States. As a result of these catastrophes, businesses will turn to…
September 20, 2018
Firm News
Eide Bailly LLP announced the winners of its 2018 Nonprofit Resourcefullness Awards, recognizing creative and sustainable revenue ideas from nonprofits in Arizona, Colorado, Minnesota, North Dakota and Utah.
September 19, 2018
Article
The IRS has started sending out Letter 5699 asking businesses to verify if they should have filed Forms 1094/1095-C. These forms are required for all ALEs.
September 19, 2018
Recorded Webinar
Are you considering doing business or having employees in Pennsylvania? Have you had issues with your state tax filing? Join our state and local tax team for some helpful insights into Pennsylvania tax filings.
September 19, 2018
Recorded Webinar
Are you considering doing business or having employees in Nevada? Have you had issues with your state tax filing? Join our state and local tax team for some helpful insights into North Dakota tax filings. This webinar will cover registration,…
September 19, 2018
Recorded Webinar
Are you considering doing business or having employees in North Dakota? Have you had issues with your state tax filing? Join our state and local tax team for some helpful insights into North Dakota tax filings. This webinar will cover registration,…
September 18, 2018
Article
As the largest tax reform legislation in the past 30 years becomes reality, it is important to stay up-to-date on planning opportunities and how reform may impact you and your business. Our Tax Reform: Practical Insights examples aim to break down…
September 18, 2018
Tool
Get ahead of tax season with the Eide Bailly Tax Planning Guide. A supplemental strategy guide to help guide year-end and make the tax laws work for you.
September 18, 2018
Article
The SCOTUS Wayfair decision has prompted a new focus on state and local tax compliance. The decision to register, report, and comply is important.