Benefits

A New, Lower-Cost Health Benefit for Small Employers

The smallest employers can now offer a different type of HRA to help employees pay for medical costs, without tying it to a group health plan.

By Rebecca Moore editors@plansponsor.com | June 02, 2017
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The 21st Century Cures Act was signed into law by tPresident Barack Obama December 13, 2016.

At the bill signing, most of the focus was on the fact that the legislation commits $6.3 billion over seven years to research and treatment for cancer, Alzheimer’s, mental health, substance abuse, and more. However, the bill also provides a new, lower-cost way for the smallest employers to offer a health benefit to employees.

According to an article written by Mercer's Barbara McGeoch and Katharine Marshall, small employers (those with 50 or fewer full-time or full-time equivalent employees) can now sponsor special tax-favored health reimbursement arrangements—called qualified small employer health reimbursement arrangements (QSEHRAs)—to help employees pay for health care costs, including premiums for individual health policies, on a stand-alone basis without having to satisfy the market reforms of the Affordable Care Act (ACA).           

The article authors explain that employers may want to sponsor QSEHRAs because the ACA's ban on annual dollar limits for essential health benefits and mandated cost-free coverage of certain in-network preventive services presented design challenges for employers. To comply with these reforms, an HRA for active employees generally must be "integrated" with another ACA-compliant group health plan. Otherwise, the employer can be subject to a $100 per day excise tax for each affected participant.

Many small employers cannot afford to sponsor medical plans meeting the ACA's group plan standards, the authors contend, and under the ACA, could no longer sponsor stand-alone HRAs to help employees pay for individual insurance policies. They can now sponsor a stand-alone HRA that meets QSEHRA standards without also having to offer a comprehensive medical plan, and active employees can use their QSEHRA dollars to pay the premiums of major medical insurance policies sold in the individual market—including on public insurance exchanges—an option not available with ordinary HRAs.

The determination of whether an employer qualifies to sponsor a QSEHRA must include the workforces of all controlled group members, so small subsidiaries within a large employer's controlled group will exceed the 50-employee threshold, the article warns.

As with all HRAs, funds to reimburse qualifying QSEHRA costs must be paid by the employer; no employee contributions are allowed. For 2017, reimbursements are limited to $4,950 for employee-only coverage and $10,000 for family coverage. These amounts are prorated for employees who participate in the QSEHRA for a partial year. The maximum dollar amounts are subject to cost-of-living indexing. But the amounts will rise only in $50 dollar increments, so in some years no COLA adjustment will apply, according to the article.

NEXT: Rules for QSEHRAs

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