New Small Employer HRA May Cover Individual Health Insurance Premiums

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BPC is pleased to alert our clients and partners about the passage of 21st Century Cures Act which President Obama signed into law on December 13, 2016.  Of particular interest to employer benefits is a provision which will allow small employers to establish a Health Reimbursement Arrangement (HRA) in order to reimburse medical expenses, including for individual health insurance premiums, for employees and their families.  This important legislative action provides small employers a powerful new strategy to provide health coverage to employees. 

BPC is excited to be able to provide document, compliance and administrative services to our clients who are interested in these plans starting as early as January 1, 2017.  If you or an organization you work with has interest in establishing such a plan, please click here to obtain a quote.

Overview:

These plans, which may be referred to as a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or Individual Premium HRA, allow small employers to help employees with overall healthcare costs.  HRA funds may be used by an employee to pay individual medical premiums or out-of-pocket medical costs.  Employers may fund HRAs with up to $4,950 for single coverage or $10,000 for family coverage (indexed for future inflation).

Eligible Employers:

An employer will typically be eligible to offer this arrangement if:

a.)    It is not subject to the employer mandate under the Affordable Care Act (those with less than 50 full time employees); AND

b.)    Does not offer a group health plan to any employees. 

Plan Requirements:

Eligible Expenses: Eligible expenses can include individual medical premiums or out-of-pocket medical costs as defined in Code § 213(d).  This will include copay, coinsurance or deductible expenses under the health plan, as well as other medical, dental and vision expenses.  HRA funds can be used to pay for such expenses on behalf of the covered employees or eligible dependents (as defined in the terms of the plan).  BPC can facilitate HRA payments via check, direct deposit, and/or debit card. 

Annual Cap: Reimbursements cannot exceed $4,950 for single or $10,000 for family coverage (indexed for future inflation).  Employers are free to use plan caps below those amounts if desired.  Plan documents may be structured such that the limit automatically rises with inflationary adjustments in future years.  Amounts may be pro-rated for employees with partial year coverage. 

Coverage Uniformity: In general, coverage must be provided to all employees on an equal basis.  Coverage may vary in accordance with variations in the price of an insurance policy in the relevant market, based on the age of an employee (and covered individuals) and the number of family members covered.  Additionally, employers may exclude part-time or seasonal employees, employees with less than 90 days service, employees younger than age 25, union employees and/or non-resident aliens without earned income within the U.S.

Funding: Like all HRAs, these plans must be funded solely by the employer.  Salary reduction contributions are not permitted.

Interaction with major medical insurance: There are several key things to keep in mind with regard to how these HRAs interact with major medical insurance. 

1.       Coverage Requirement: HRA reimbursements will only be tax-free in months when the individual has Minimum Essential Coverage (MEC).  A covered individual (employee or dependent) who fails to obtain MEC for a given month may receive reimbursements for services in that month, but they will not be tax-free.  IRS regulations could provide further clarity, but it appears that employers may rely on employee certification that such coverage is in force.  Qualifying MEC could include an individual policy, Medicare or Medicaid coverage, or coverage through another employer (such as through an employee’s spouse). 

2.       Exchange Subsidy Impact: Employees provided with an HRA under the terms of the bill may be subject to lower premium tax credits when purchasing Exchange coverage.  If the coverage provided by the HRA constitutes affordable coverage, then the employee will not be eligible for a subsidy.

Required Notice: The law requires distribution of a specific notice to all eligible employees.  Failure to provide the notice may result in penalties of up to $50 per employee, up to $2,500 per year. 

1.       Timing: In general, distribution must occur 90 days prior to the plan year start, but transition relief allows employers to distribute the notice in early 2017 for this year. 

2.       Content: Notices must include (1) the amount of the employee’s permitted benefit, (2) instructions to the employee to disclose that amount when applying for any premium tax credits on the Exchange, and (3) a warning to employees about the requirement to maintain Minimum Essential Coverage (MEC). 

W-2 Reporting: Employers must report the benefit available under the HRA on employee’s Form W-2 for calendar year 2017 (forms distributed in 2018). 

COBRA Exemption: HRAs meeting the requirements of this act will not be treated as a group health plan for purposes of COBRA continuation coverage.  Therefore employers may offer the coverage to active employees, without any obligation to offer or provide continuation coverage once an employee terminates.  

More Information:

BPC will follow industry commentary and regulatory guidance carefully with these plans.  We consider this a positive development for small employers looking for new options to provide affordable healthcare to their employees. If you or an organization you work with has interest in establishing such a plan, please click here to obtain a quote.  

 

Posted on December 13, 2016 and filed under HRA, QSEHRA, COBRA.