Although a helpful change, the law only offers limited relief. The Cures Act will only permit entities that are NOT applicable large employers (ALE, as defined in the ACA) to pay for individual coverage. Also, even when permitted, special rules apply caps and conditions on the available health coverage that can be purchased through an HRA. Perhaps most notably, a non-ALE that voluntarily chooses to sponsor a group health plan that provides Minimum Essential Coverage (MEC) to employees is automatically blocked from funding someone’s individual coverage using an HRA. (Presumably this rule is in place to help protect the Exchanges from suffering adverse risk-shifting if employers were permitted to use an HRA to selectively entice expensive benefit users to exit their group health plans.)
On Tuesday, December 13, 2016, President Barack Obama signed the 21st Century Cures Act, (“Cures Act”) into law. Most of the nearly one-thousand page law deals with funding for Mental Health initiatives (including Alzheimer’s disease and certain forms of cancer). Importantly though, the law grants small employers (employers with less than 50 FT and FTE employees, non-ALEs) greater flexibility in offering a health program to their employees via a Health Reimbursement Arrangement.
Welcome News for Small Employers
Small Employers Can Implement and Offer Individual Health Reimbursement Arrangements (HRAs) to their Employees
Beginning on January 1, 2017, employers can provide “direct reimbursement” of premiums paid by employees for major medical coverage, individual or family, and for other qualified health care expenses. This provision essentially “nullifies” IRS Notice 2013-54, which made such reimbursement (i.e., employer payment plans and stand-alone HRAs) illegal.
However, the reimbursement opportunity is narrowly-tailored, and, in order for employers to benefit from the provisions of the Cures Act, employers must satisfy all of the following criteria:
Small employers offering HRA reimbursement should also be aware of the following Cures Act provisions:
Small employers (non-ALEs) facing rising healthcare medical costs, and small employers that wish to begin offering benefit coverage to their employees, should carefully compare the financial advantages and potential disadvantages of offering an HRA to their employee population over traditional small group medical plans. Employers considering replacing their existing small group medical plans with an HRA should note that HRAs will be funded exclusively with employer contributions, and that employees will no longer be able to contribute on a pre-tax basis towards the cost of their medical coverage purchased from the individual market, therefore increasing an employer’s payroll tax liability.
The Cures Act contains a variety of other provisions affecting plan sponsors that we will address in future HUB International publications. Meanwhile, we will also closely monitor the implementing regulations for HRA usage under the Cures Act which are anticipated in the coming months. We also encourage employers to contact their Cowan/HUB representative for further information regarding this matter.