Health Reimbursement Plans: How the New Law Affects Your Small Business

The 21st Century Cures Act, signed into law by President Obama on Dec. 13, 2016, will now allow small employers to offer standalone health reimbursement arrangements that may reimburse individual market insurance premiums, among other types of medical expenses. This law took effect on January 1, 2017, and is a big change for small employers who were previously not allowed to offer such benefits unless the employee participated in a group health plan provided by the employer. By giving small employers more options when it comes to health benefits for their employees, President Obama has allowed these employers to create total rewards packages to rival larger employers, and hopefully entice and retain star talent. A qualified small employer HRA may now 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.

As with most changes in legislation, this one comes with a set of additional requirements that must be met in order for an employer to qualify. They include:

  • The HRA must be provided on the same terms to all eligible employees of the small employer. (The Act does allow for certain employees to be excluded).
  • 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 is subject to annual increases.
  • Employers must 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 result in monetary penalties for the employer.
  • Qualified small employer HRA benefits must be reported on an employee’s Form W-2 each year.