This article is for informational purposes and is not meant to provide legal, regulatory, accounting, or tax advice.
As the name suggests, the 21st Century Cures Act aims to find medical breakthroughs that will help combat major health challenges. But there’s a lot more to the bill than just that. In fact, the 21st Century Cures Act, signed into law by President Obama on December 13th, 2016, has a huge impact on how small businesses help pay for health coverage.
Here’s what small business employers need to know:
Small business employers can now help cover the cost of their employees individual health plans via a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) without being penalized.
The background: Since the Affordable Care Act became law, employers could only provide HRAs when they were integrated with ACA compliant group health plans. As result, employers who used HRAs to reimburse employees for premiums on individual market policies would face penalties.
Section 18001 of the 21st Century Cures Act, changes this. Qualifying small employer HRAs are no longer subject to this restriction, and may be used by employers to reimburse individuals, effective January 1st, 2017.
However, while the penalties have been lifted, qualifying isn’t easy – and there are also state laws that conflict with the Cures Act.
So, who’s eligible to reap the benefits of this new rule? Unfortunately, not everyone.
Only employers with 2 to 50 full-time employees with qualifying HRAs (defined below), who do not offer group health plans, are eligible.
What’s more, eligible employers may set up qualified HRAs for employees, but may choose to exclude employees who fall into one or more of the following groups:
In addition to meeting employer eligibility requirements (outlined above), the QSEHRAs must also meet the following guidelines:
Penalty Watch: A failure to meet any of these requirements will cause the employer’s HRA to be considered a “group health plan” under the ACA, and be assessed an excise tax and penalties.
This is important for small business employers to recognize.
While the Cures Act was signed into law, it doesn’t necessarily mean it’s automatically applicable. Employers need to consider their state’s laws as well, as many conflict with the Cures Act.
For example, certain states such as Minnesota and New Jersey currently have regulations prohibiting employers from reimbursing employees for individual plans. In California, carriers are prohibited from offering individual coverage to employers with such reimbursement arrangements.
While these laws conflict with the Cures Act exemption, and may therefore be amended or even deemed to be preempted in the future, this process is likely to take some time. Please see below for a breakdown of state regulations on individual reimbursement plans:
Employers are required to provide employees with a notice – no later than 90 days before the beginning of the plan year – or on the employee’s eligibility date.
The notice must state:
Penalty Watch: The cost of failing to provide 90-days notice? A penalty of up to $2,500 per year – yikes! That’s a huge chunk of change, so be sure to plan accordingly. Further information on the notice requirement can be found here.
Can Employees Benefit from a QSEHRA and still Qualify for a Tax Credit?
Yes – but there will be restrictions to prevent “double-dipping” of both benefits. Essentially, the amount of the tax credit will be adjusted to account for the monthly HRA funded by the employer.
What about COBRA?
Since a QSEHRA is not a group health plan, small employers are not required to offer COBRA to employees receiving this benefit.
Note: These laws may change and the page will be updated to reflect any developments. Please consult your legal counsel before making decisions on any of the above.
[Please contact us at Zenefits for further information or assistance with your employee benefits.]