Banking & Finance, Health Care, and Law

Guidance on HRAs for qualified small employers and their qualified employees

April 30, 2018
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Prior to the Patient Protection and Affordable Care Act of 2010, health reimbursement arrangements, or HRAs, had been a familiar item, particularly to small businesses. As a result of the change in law, employers have been penalized for providing HRAs to their employees, causing many to turn away from the traditional HRA.

In 2016, however, the 21st Century Cures Act was introduced. This new legislation allowed for a modified version of an HRA, which now provides a way for employers to offer qualified small employer health reimbursement arrangements, or QSEHRAs, with no tax penalties.

Under this new act there are certain qualifications that must be met from the employer side as well as from the employees.

A QSEHRA is not a group health plan; therefore, it is not subject to the group health plan requirements under the Tax Code. The main difference between QSEHRA and a traditional HRA is that payments to reimburse an eligible employee’s medical expenses are not included in the employee’s gross income.

An eligible employer is one that does not offer a group health plan to any of its employees and has an average of fewer than 50 full-time and full-time equivalent employees. Examples of a group health plan that would disqualify a company from participating in a QSEHRA include HRAs, health flexible spending arrangements and plans that offer only a vision or dental health plan.

Under a QSEHRA plan, there are statutory dollar limits for coverage that an employer can provide. For self-only coverage, the maximum reimbursement is $5,050 per year (in 2018) and for family coverage, the maximum is $10,250 per year.

An eligible employee also has to meet certain criteria.

He or she must be an employee of an eligible employer, must be at least 25 years old and must be a full-time employee. Also, the QSEHRA only can be funded by the employer and cannot be funded through an employee payroll deduction.

For more information regarding the 21st Century Cures Act and QSEHRAs, see IRS Notice 2017-67 in which you will find lots of information to answer your questions.