On December 13, 2016, President Obama signed into law the 21st Century Cures Act, which allows small employers to maintain health reimbursement arrangements (HRAs) for the purpose of reimbursing employees for the cost of premiums for individual health insurance policies.

As background, the IRS provided in Notice 2013-54 that employers who maintain HRAs that reimburse employees for the cost of premiums for individual health insurance policies violate the Patient Protection and Affordable Care Act (PPACA), subjecting such employers to potential excise taxes of $100 per day per affected employee. In Notice 2015-17, the IRS provided transition relief from these excise taxes to small employers not subject to the PPACA’s employer mandate. The transition relief under this notice ended on June 30, 2015.

The Cures Act extends the penalty relief set forth in Notice 2015-17 through December 31, 2016, and permanently exempts from these excise taxes Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), effective January 1, 2017. To qualify as a QSEHRA, an employer must satisfy the following requirements:

  • Employ on average less than 50 full-time employees and full-time equivalents
  • Not offer group health coverage to any employees
  • Offer HRA coverage to all employees, with certain permitted exclusions (e.g., part-time and seasonal employees)
  • Offer HRA coverage on the same terms to all eligible employees, with certain permitted variations based on the price of an individual policy (e.g., age and number of enrolled family members)
  • Offer HRA benefits that do not exceed $4,950 for individual coverage and $10,000 for family coverage (adjusted for inflation in future years)Distribute a specific annual notice regarding details of the employer’s HRA plan