EBIA Weekly Newsletter

President Signs Legislation Authorizing Stand-Alone HRAs for Small Employers

   December 15, 2016

21st Century Cures Act, Pub. L. No. 114-255 (Dec. 13, 2016)

Available at https://www.congress.gov/114/bills/hr34/BILLS-114hr34enr.pdf

The President has signed legislation allowing small employers with no group health plan to offer their employees a stand-alone health reimbursement arrangement (HRA) to help pay for medical care expenses—including Exchange coverage. The legislation also covers a broad range of other health-related topics, including medical research, drug development, mental health care, and Medicare. Here are highlights of the small employer HRA provision and other provisions that may affect employers and their advisors:

  • Qualified Small Employer HRAs. The legislation establishes a new type of HRA called a qualified small employer health reimbursement arrangement (QSEHRA) that is not considered a group health plan for almost all purposes under the Code, ERISA, and the Public Health Service Act (PHSA). QSEHRA benefits must be employer-funded (no salary reductions), may not be excluded from income unless the recipient has minimum essential coverage (as defined in Code § 5000A(f)), and can only be used to pay for medical care expenses (as defined in Code § 213(d)) of eligible employees and their covered family members after the employee has provided proof of coverage. QSEHRAs are generally available for years beginning after 2016.

    • Qualifying Employers. QSEHRAs may be offered only by employers that do not offer a group health plan and are not “applicable large employers” (ALEs) as defined in Code § 4980H(c)(2).
    • Eligible Employees. QSEHRA benefits generally must be offered on the same terms to all employees, with limited exceptions including employees with fewer than 90 days of service, those under age 25, and certain part-time and seasonal employees.
    • Benefit Amount. Annual benefits cannot exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered) and must be provided on the “same terms” to all eligible employees. However, differences are permitted in accordance with price variations based on age or number of covered family members for a benchmark policy “in the relevant individual health insurance market.”
    • Notice Requirement; W-2 Reporting. Employers offering a QSEHRA must give an annual notice to eligible employees at least 90 days before the start of the year or the employee’s initial eligibility date, or within 90 days after the legislation’s enactment, whichever is latest. The notice must (1) state the amount of the employee’s permitted benefit, (2) instruct the employee to disclose the permitted benefit amount to the Exchange if the employee seeks advance payment of premium tax credits, and (3) include a warning that if the employee does not have minimum essential coverage for any month, the employee might be subject to tax under Code § 5000A and the QSEHRA reimbursements might be taxable. Employees’ permitted benefits must be reported on Form W-2.
    • Coordination with Health Care Reform. QSEHRA benefits that meet the law’s special definition of “affordable coverage”—which measures the extent to which the QSEHRA benefit would reduce the premium of the second lowest-cost silver plan in the relevant individual health insurance market below 9.5% of the employee’s household income—may prevent covered individuals from receiving premium tax credits. QSEHRA benefits will also be taken into account when determining the tax on high-cost health coverage (the “Cadillac tax”).
  • Mental Health Parity. Several provisions are aimed at improving compliance with the mental health and substance use disorder parity rules. Federal agencies (HHS, DOL, and Treasury) are directed to issue guidance with regularly updated examples and illustrations based on actual investigations of violations. They must also issue additional guidance on disclosure methods and nonquantitative treatment limitations. In addition, the new law requires the agencies to audit plans and insurers that have violated the parity rules at least five times, and clarifies that eating disorder benefits, including residential treatment, must be provided consistent with the requirements of the parity rules.
  • HIPAA Privacy. There are also provisions relating to health information technology and the privacy and security of health information. A new committee will provide recommendations on several “target areas,” including technologies that allow for accounting of disclosures of protected health information (PHI) for treatment, payment, and health care operations, and methods for facilitating secure access to an individual’s PHI by individuals and their family members, caregivers, and guardians. In addition, HHS must issue guidance clarifying when health care providers or other covered entities may use or disclose PHI when communicating with family members, caregivers, and others involved in a patient’s care in specified circumstances.

EBIA Comment: The QSEHRA provisions allow small employers that are not subject to health care reform’s employer shared responsibility provisions to offer some relief for employees’ health care costs without the trouble and expense of providing a group health plan. The new law sidesteps health care reform guidance prohibiting the pre-tax funding of individual policies (see our Checkpoint article) and retroactively extends transition relief in IRS Notice 2015-17 (see our Checkpoint article) that waived reporting and penalties for violations by non-ALEs but expired in mid-2015. The prospect of fundamental changes to health care reform under the Trump administration creates some uncertainty regarding the ultimate impact of this legislation. For more information, see EBIA’s Consumer-Driven Health Care manual at Section XXI.B (“HRA Legal Requirements”); EBIA’s Group Health Plan Mandates manual at Section IX (“Mental Health Parity”); and EBIA’s HIPAA Portability, Privacy & Security manual at Sections XXVI.C (“Disclosures to Family Members, Close Personal Friends, and Other Persons Identified by the Individual”) and XXVII.D (“Right to Obtain an Accounting of Disclosures”). See also EBIA’s Health Care Reform manual at Sections XXX (“Tax on High-Cost Health Coverage”) and XXIX.F (“Premium Tax Credits for Lower-Income Individuals”).

Contributing Editors: EBIA Staff.