The 21st Century Cures Act (Cures) signed by President Barack Obama on Dec. 13, 2016, contains a smorgasbord of health-related provisions, from reforming federal mental health policies to increasing funding for medical research. Tucked away near the end of the voluminous law is an important provision that allows small employers to help their employees with the cost of medical-care expenses, including premiums for individual health policies, through the use of Health Reimbursement Arrangements (HRAs).
HRAs, employer-funded medical reimbursement plans, have been used by employers for years, although their use has been limited recently. After enactment of the Affordable Care Act (ACA), the Internal Revenue Service (IRS) announced that an HRA must be integrated with a group health plan that provides coverage that satisfies the ACA's market reforms for those plans or the employer will be subject to a $100 per day, per employee tax. The IRS rule was premised on the fact that a stand-alone HRA was a group health plan. Therefore, HRAs were subject to the ACA’s market reforms, including the requirement that a group health plan cannot establish an annual limit on the dollar amount of benefits for any individual.
Cures overturns the IRS guidance in that it permits the use of Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), effective Jan. 1, 2017. Among other things, to qualify as a QSEHRA, the funds must be contributed solely by the employer (rather than through payroll deductions), must be offered to all employees on the same terms and can only be made up to certain yearly maximum amounts. Only small employers – generally those with less than 50 full-time or full-time equivalent employees – can take advantage of this new option.
Although the ability to offer QSEHRAs is certainly welcome news to small employers, the timing of the provision is interesting given the ACA's uncertainty. However, it is likely that more flexibility for employers through the use of HRAs will be supported by decision-makers in Washington, D.C., as part of any new legislation that replaces the ACA.