December 2016 brought us the 21st Century Cures Act, and with it some good news for small employers wishing to help their employees pay for medical expenses without the burden and expense of offering a full major medical group health plan.
Unlike large employers—those with 50 or more full-time employees in the prior year—small employers are not required to abide by the “pay or play” rules of the Patient Protection and Affordable Care Act (ACA) by either offering affordable, minimum value health coverage to their full-time employees or paying a penalty. However, if small employers do offer their employees group health plans, those plans—like large employer plans—are generally subject to the ACA’s “market reform” requirements, and a noncompliant plan could cost its sponsor an excise tax of $100 per employee per day under Section 4980D of the Internal Revenue Code.
The market reform rules include the following:
- Group health plans cannot put annual limits on reimbursements for certain essential health benefits
- Group health plans must provide certain preventive care services without any cost sharing
Before the ACA, some employers would reimburse employees for the cost of individual health coverage purchased on the open market (called an “employer payment plan”) or would give employees a fixed dollar amount to apply to the cost of individual health coverage or other medical expenses (a “stand-alone HRA”). However, guidance under the ACA has consistently held that employer payment plans and other HRAs are group health plans that do not comply with the annual dollar limit prohibition or provide preventive services without cost sharing because, by design, they pay or reimburse medical expenses on the employee’s behalf only up to a certain dollar amount each year.
However, starting with the 2017 plan year, the 21st Century Cures Act exempts from the market reform requirements of the ACA a “qualified small employer health reimbursement arrangement” (QSEHRA). A QSEHRA must
- be offered by an employer that has fewer than 50 full-time equivalent employees in the prior year and that does not offer a group health plan to any of its employees;
- be funded entirely by the employer and not through employee salary reductions;
- provide for payment of, or reimbursement for, the expenses of an eligible employee and his/her family members for medical care (as defined in Code Section 213(d)), including the cost of coverage obtained on the individual market;
- not reimburse more than $4,950 ($10,000 for families) of eligible expenses for any year, as adjusted for cost of living;
- be provided on the same terms to all the employer’s eligible employees (those who have at least 90 days of service), although variations are permitted based on the number and ages of family members; and
- be made known to eligible employees by the employer through annual advance notice of the QSEHRA’s availability.
FAQs issued in connection with the 21st Century Cures Act by the US Departments of the Treasury, Labor, and Health and Human Services (FAQs About Affordable Care Act Implementation Part 35) also extended transitional relief that permits small employers to maintain employer payment plans (but not stand-alone HRAs) through the end of the 2016 plan year without paying excise taxes for market reform noncompliance.
Of course, with a new Republican administration and a Republican House of Representatives and Senate, the fate of the ACA in its entirety is now very uncertain. However, in the short term, this development is good news for small employers that want to give their employees some help with medical costs on a pre-tax basis, but want to limit their involvement to providing a predictable, limited number of benefit dollars to each eligible employee.