On December 13, 2016, President Obama signed into law the 21st Century Cures Act. The Cures Act, which pays for cancer research, mental health treatments, the fight against opioid abuse, also creates a new type of employer-provided health care coverage – qualified small employer health reimbursement arrangements. Previously, such plans did not meet the stringent requirements of the Affordable Care Act (ACA), otherwise known as “Obamacare,” and were subject to hefty penalties. Now, under the new law, small businesses can offer stand-alone health care reimbursement plans to their employees.
Section 18001 of the 21st Century Cures Act amends the Code, ERISA, and the ACA to exempt qualified small employer health reimbursement arrangements (QSEHRAs) from certain requirements that apply to group health plans. As a result, such plans can now be offered to employees of small businesses. A QSEHRA is defined as an arrangement offered by an employer that has fewer than 50 full-time employees and that does not offer group health plans to any of their employees. In order to qualify as a QSEHRA, the arrangement must:
(1) be provided on the same terms to all eligible employees of the employer;
(2) be funded solely by the employer without salary reduction contributions;
(3) provide, after an employee provides proof of insurance coverage, for the payment or reimbursement of medical expenses of the employee and family members; and
(4) limit annual payments and reimbursements to specified dollar amounts ($4,950 per year for individuals, and $10,000 for families).
QSEHRAs that meet these requirements are not considered group health plans and are exempt from the various requirements that apply to group health plans. An arrangement does not fail to be provided on the same terms to all eligible employees merely because employees’ permitted benefits vary with the price of a health insurance policy in the individual insurance market based on the ages of the employee and family members or the number of family members covered by the arrangement, provided that the variation is determined by reference to the same insurance policy for all eligible employees.
Coverage and payments under QSEHRAs are excluded from gross income, unless the employee does not have minimum essential health insurance coverage for the month in which the medical care was provided. Employers offering a QSEHRA must notify employees in advance regarding permitted benefits. Additional information reporting is required, including the reporting of benefit information on W-2 forms.
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