New Law Allows Small Employers To Use Stand-Alone Health Reimbursement Arrangements

December 14, 2016

President Obama has signed into law the 21st Century Cures Act (“Legislation”). Among other things, the Legislation will permit small employers – employers with fewer than 50 full-time employees or equivalents – to maintain general-purpose stand-alone Health Reimbursement Arrangements (HRAs) if they do not offer a group health plan to any of their employees.

The Legislation will allow small employers to use HRAs to pay for qualified out-of-pocket medical expenses and for non-group plan health insurance premiums, including for plans purchased on public health care exchanges under the Affordable Care Act (ACA). The Legislation is effective for plan years beginning after December 31, 2016.

The Legislation creates a new type of HRA – the qualified small employer health reimbursement arrangement (QSEHRA). The Legislation specifies that:

  • The 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 adjusted annually for inflation.
  • Small employers that choose to provide QSEHRAs must offer them to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.
  • Generally, an employer must make the same QSEHRA contributions for all eligible employees. However, amounts may vary based on the price of an insurance policy in the relevant individual health insurance market, which in turn can be based on the age of the employee and eligible family members, or the number of family members covered.

Applicable large employers – employers with 50 or more full-time employees or equivalents – still must comply with the ACA mandate to provide affordable group health coverage to full-time employees, which excludes them from using HRAs to fund employees' purchase of non-group plans. Additionally, the ACA’s prohibition on stand-alone HRAs for spouses of employees remains in effect.

SESCO recommends that clients review all applicable policy and practices to ensure compliance. For assistance, contact us at 423-764-4127 or by email at sesco@sescomgt.com