Expertise Beyond the Numbers

Congress Enacts Law Allowing Small Businesses to Use HRAs Under the Affordable Care Act [Blog Post]

The following blog post from SC&H Group’s Tax Services team highlights a recent passage of the 21st Century Cures Act, which will allow certain small businesses to use health reimbursement arrangements (HRAs) without incurring penalties.

On December 13th, President Obama signed the 21st Century Cures Act, which speeds up the approval process for new drugs and medical devices, expands funding for medical research, and much more.

From a tax perspective, the bill will allow certain small businesses to use health reimbursement arrangements (HRAs) without incurring penalties under the Patient Protection and Affordable Care Act (PPACA).

According to a recent AICPA news alert, the bill amends Sec. 9831 to add an exception for qualified small employer HRAs. The IRS had previously concluded that HRA plans are group health plans that fail to comply with the market reforms that apply to group health plans under PPACA, and are therefore subject to the excise tax in Sec. 4980D. This penalty would be $100 per day per employee.

Here are some additional key points from the AICPA alert:

  • The act overrules the IRS position by defining “group health plan” as not including “any qualified small employer health reimbursement arrangement.” Under the new law, a qualified small employer HRA must be funded solely by an eligible employer, and there can be no salary reduction contributions under the arrangement.
  • The HRA must also provide for the payment of an eligible employee’s expenses for medical care that are incurred by the eligible employee or the eligible employee’s family members. Finally, the amount of payments and reimbursements under the plan for any year cannot exceed $4,950 ($10,000 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee).
  • To be a qualified small employer HRA, the arrangement must be provided on the same terms to all eligible employees, although the Act allows benefits under the arrangement to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.
  • To be eligible to offer a qualified small business HRA, the employer must not be an applicable large employer, as defined in Sec. 4980H(c)(2) (generally less than 50 FT employees), and must not offer a group health plan to any of its employees.
  • The act coordinates the new exclusion with the Sec. 36B health insurance premium credit to provide that a qualified small business HRA can provide “affordable coverage,” and that a “coverage month” does not include a month in which an employee receives affordable coverage under a qualified small business HRA.
  • The new rules apply to years beginning after Dec. 31, 2016.

If you have any questions about these legislative changes that could potentially impact your small business, please contact SC&H Group’s Tax Services team here.