By Chuck Randolph
Expected to be signed soon, a new bill will include a provision allowing certain small businesses to use qualified Health Reimbursement Accounts (HRA) to reimburse health costs and insurance premiums which will be exempt from Patient Protection Care Act (ACA) group plan rules and ACA penalties.
Prior Law
Many businesses provided health benefits to their employees through an HRA which were excludable from the employee’s gross income under law prior to ACA. These reimbursement plans failed the ACA requirements. Failure to comply triggered steep penalties.
New Law
Effective for tax years beginning after December 31, 2016, a qualified small employer HRA will not be treated as group health plan. Thus, these arrangements will not be subject to ACA market reforms and the excise tax. A qualified small employer HRA is defined as follows:
- The HRA is maintained by the employer and employs fewer than 50 employees and does not offer group health plan coverage to any of its employees.
- The benefit is provided on the same terms to all eligible employees. The benefit will not violate the test if insurance or medical expense is higher for one employee than another. Each employee is different and their policy will be different.
- The benefit is funded solely by the employer with no salary reduction contributions by the employee.
- The employee must provide proof of insurance coverage or the medical expense for the payment or reimbursement.
- The amount of the annual payments cannot exceed $4,950 for single taxpayers and $10,000 for families.
There are reporting requirements for employers taking advantage of these provisions. The employer must provide the following in a written notice to each eligible employee no later than 90 days before the beginning of the year, or the date on which the employee is eligible:
- A statement of the permitted benefit under this arrangement.
- A statement that the eligible employee should provide specific information to any health insurance exchange to which the employee applies for the advanced payment of the premium assistance tax credit.
- A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to tax for each month of non-coverage.