Legal Alerts Dec 19, 2016

21st Century Cures Act Permits Standalone HRAs for Small Employers

The Act Takes Effect in 2017

21st Century Cures Act Permits Standalone HRAs for Small Employers

The 21st Century Cures Act, signed into law by President Obama on Dec. 13, permits small employers to offer standalone health reimbursement arrangements that may reimburse individual market insurance premiums, among other types of medical expenses. The new law takes effect Jan. 1.
 
This is considered a significant change for small employers that could not previously offer HRAs for employees unless those same employees also participated in a group health plan sponsored by the employer. In addition, small employers could not previously provide for the payment of individual market insurance premiums of employees on a nontaxable basis. The consequence of failing to comply with these restrictions subjected small employers to a steep penalty of $100 per day, per employee.
 
Under the new Act, a qualified small employer HRA is not subject to the preceding restrictions. A qualified small employer HRA may be offered by employers with less than 50 full-time and full-time equivalent employees that do not offer a group health plan to any of their employees. There are additional requirements that must be met, including:

  • The HRA must be provided on the same terms to all eligible employees of the small employer. Exclusion of certain employees specified under the Act is permitted.
  • The HRA must be funded solely by the employer. No salary reduction contributions are permitted.
  • The HRA must provide for the reimbursement or payment of expenses for medical care for the employee or the employee’s eligible family members after the employee provides proof of coverage.
  • The maximum reimbursement or payment available under the HRA cannot exceed $4,950 for employee-only coverage or $10,000 for family coverage in any year. This limit will be prorated for partial year coverage and will be increased annually for inflation. 
  • Employers must also provide a notice containing certain required information to eligible employees no later than 90 days before the beginning of each year in which a qualified small employer HRA is offered. Failure to provide the notice will subject the employer to penalties of $50 per employee, up to a maximum of $2,500 per year. For 2017, the notice may be provided within 90 days after the date of enactment of the Act. 


Finally, qualified small employer HRA benefits must be reported on an employee’s Form W-2 each year for calendar years beginning after Dec. 31.
 
If you have any questions about the application of the Act to your business or agency, please contact one of the attorney authors of this Legal Alert listed to the right in the firm’s Employee Benefits & Executive Compensation practice group or your BB&K attorney.
 
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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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