When The Patient Protection and Affordable Care Act (PPACA) was passed in March 2010, it mainly affected individuals (requiring them to maintain adequate health coverage) and large businesses (requiring employers with more than 50 full-time employees to offer affordable health coverage to their employees).  However, the act also affected small employers, namely, their ability to provide reimbursements to employees for health insurance premiums paid individually.

 

Since the enactment of PPACA, small employers have been told they are not allowed to reimburse employees for their health insurance premiums purchased individually.  The reason – in doing so, employers would be establishing a ‘group health plan’ in violation of the health care provisions[1].  Specifically, the PPACA prohibits group health plans from establishing annual dollar limitations[2] and requires group health plans to provide no-cost preventative services[3].

 

Employers establishing such noncompliant ‘group health plans’ could be subject to hefty penalties ($100 per employee per day, up to $36,500 annually per employee)[4].  Recently these rules have changed.

 

On December 13, 2016, President Obama signed into law the 21^st Century Cures Act[5], which now allows small employers to provide Health Reimbursement Arrangements (HRAs) to employees without being subject to penalty.  To qualify, the small employer HRA must:

 

1. Be maintained by an eligible employer;
2. Be provided to all eligible employees under the same terms;
3. Be funded entirely by the employer;
4. Provide payment or reimbursement of eligible expenses after an employee provides proof of coverage;
5. Limit the amount of payments or reimbursements to $4,950 (for employee only) or $10,000 for employee and his or her dependents and/or spouse).

 

A note of caution: The new rules, which are effective for plan years beginning after December 31, 2016, would add W-2 reporting requirements and if an employee does not maintain minimum essential coverage, reimbursements from the HRA would be includible in gross income and subject to tax.

 

For more information on the implications of the 21^st Century Cures Act and how it may impact the benefits you offer your employees, we encourage you to speak to your employee benefit administrator today.

[1] IRS Notice 2015-87

[2] 29 CFR 2590.715-2711 – No Lifetime or Annual Limits

[3] 29 CFR 2590.715-2713 – Coverage of Preventative Health Services

[4] 26 U.S. Code Sect. 4980D – Failure to Meet Certain Group Health Plan Requirements

[5] HR 34 – the 21^st Century Cures Act, Sect. 18001