The 21st Century Cures Act, was passed on December 13, 2016, which allows small employers to sponsor a stand-alone Health Reimbursement Account (HRA). A stand-alone HRA is a plan not paired with a group health insurance plan.
This type of HRA known as a Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), allows small employers to adopt stand-alone HRAs which can be used to reimburse any Code Section 213(d) medical expenses, including premiums for individual health insurance plans purchased on or off the Exchange.
This is a change from Affordable Care Act (ACA) rules which prohibited stand-alone HRAs. As a substitute, the HRA is offered as a stand-alone health benefit to employees, and can even be used as an alternative to health insurance. This act amends the ACA’s definition of a “group health plan” to exclude QSEHRAs, thereby exempting this type of plan from the ACA requirements that cause HRAs to be non-compliant.
For this law to be applicable, an employer must be a ‘small’ employer with less than fifty (50) full-time equivalent employees during the prior year. The federal government set a maximum reimbursement limit per year. The annual limit will start at $4,950 for single coverage and $10,000 for family coverage. However, employers are allowed to create different reimbursement limits based on age and size of the family. Access to subsidies in an Exchange will be eliminated or reduced by the amount available for reimbursement through the Qualified Small Employer HRA.
In addition to the requirement that only small employers can sponsor QSEHRAs, the employer may not offer a group health plan.
Other requirements of a QSEHRA are that the individual incurring the expense must have other coverage which includes being enrolled in minimum essential coverage (MEC). The plan terms must be the same for all eligible employees but can be based on age and family size.
Employers must notify employees if they intend to sponsor a QSEHRA for plan years beginning after December 31, 2016, in writing at least ninety days prior to offering the QSEHRA.
Participating in a QSEHRA will have an impact on an individual receiving a tax subsidy for coverage. If the employee is participating in a QSEHRA for a month and it constitutes affordable coverage the individual will not receive a subsidy for that month.
Employers can evaluate whether a QSEHRA is available to them and if it meets their needs. QSEHRAs are particularly a good fit for employers that don’t sponsor a group health plan and have a number of employees purchasing individual health insurance premiums.