New Law Lets Small Employers Use Stand-Alone Health Reimbursement Arrangements
By Stephen Miller, CEBS
Dec 13, 2016 - SHRM
President Barack Obama is expected to sign into law the 21st Century Cures Act, which would let small
businesses use health reimbursement arrangements (HRAs) to fund
employees who purchase individual health plans on the open market.
The bipartisan bill, which Congress passed Dec. 7, focuses primarily on
speeding up drug approvals and making innovative treatments more accessible. But
it also includes provisions that would affect employer-provided health benefits,
specifically using HRAs to pay for nongroup plan premiums and ensuring that
a health plan's mental health care benefits are equivalent to its physical
health care benefits.
HRA Roadblock Removed
The legislation allows small employers with fewer than 50 full-time employees
or equivalents that don't sponsor a group health plan to fund employee HRAs to
pay for qualified out-of-pocket medical expenses and for nongroup
plan health insurance premiums, including for plans purchased on
public health care exchanges under the Affordable Care Act (ACA).
Federal agencies' rules, in particular IRS Notice 2013-54 and DOL Technical
Release 2013-03, have frustrated many small employers by preventing them from using so-called "stand-alone HRAs" to
reimburse employees who buy nongroup health insurance coverage.
"Many employers were upset when the Obama administration shut down the
ability for employers to just provide money on a pretax basis for employees to
purchase their own health insurance on the open market—a trend that many saw as
the wave of the future," said Brian Pinheiro, chair of the employee benefits
group at law firm Ballard Spahr in Philadelphia.
The 21st Century Cures Act, which incorporates key elements of the proposed
Small Business Healthcare Relief Act, creates a new type of HRA—the qualified
small employer health reimbursement arrangement (QSEHRA). The legislation
specifies that:
- The maximum reimbursement for health expenses that small employers
can provide through employee QSEHRAs is $4,950 for single coverage and $10,000
for family coverage, to be adjusted annually for inflation.
- Small employers that choose to provide QSEHRAs must offer them to all
full-time employees except those who have not yet completed 90 days of
service, are under 25 years of age, or who are covered by a collective
bargaining agreement for accident and health benefits. Part-time and seasonal
workers may also be excluded.
- Generally, an employer must make the same QSEHRA contributions for all
eligible employees. However, amounts may vary based on the price of an
insurance policy in the relevant individual health insurance market, which in
turn can be based on the age of the employee and eligible family members, or
the number of family members covered.
While the act takes effect for plan years beginning after Dec. 31, 2016,
"this comes a little late in the game for employers that have already made plans
for 2017, but it is an option many employers may want to consider" for
subsequent years, said Joseph Lazzarotti, a principal in the Morristown, N.J.
office of Jackson LewisPC.
"For eligible small employers, this new law is welcomed and overturns
guidance previously issued by the Internal Revenue Service and the Department of
Labor that stated that HRA arrangements violated the ACA insurance market
reforms, subjecting small employers to a penalty for providing such
arrangements," said Chatrane Birbal, the Society for Human Resource Management's
senior advisor for government relations. "This change provides small employers
greater flexibility in terms of benefit offerings and allows eligible employers
to use HRAs to help employees purchase an affordable health insurance plan that
fits their individual budget and health care needs."
A cautious note was sounded by Timothy Jost, a professor at the Washington
and Lee University School of Law in Lexington, Va. "Employer organizations have
been lobbying for this legislation for some time," he noted. "Concerns have been
expressed regarding it, however. Over half of employers with fewer than 50
employees currently offer health coverage, and fewer small employers might offer
coverage, or small employers might offer less-generous coverage, once HRAs can
be offered to pay for individual market coverage instead."
So-called applicable large employers—those with 50 or more full-time
employees or equivalents—still must comply with the ACA mandate to provide
affordable group health coverage to full-time workers, which excludes them from
using HRAs to fund employees' purchase of nongroup plans. The incoming Trump
administration has pledged to "repeal and replace" the ACA, including the
employer coverage mandate. However, in the meantime, "the ACA is still the law
of the land," said Scott Behrens, an Employee Retirement Income Security Act
compliance attorney at Lockton Companies, a benefits brokerage and consultancy
based in Kansas City, Mo.
Mental Health Parity
A separate provision of the 21st Century Cures Act requires the Department of
Health and Human Services (HHS) to issue guidance to assist health plan
compliance with existing mental health parity law. The act also instructs
the departments of HHS, Labor and the Treasury to release compliance program
guidance providing examples of audit findings with existing mental health parity
requirements—intended to remind plan sponsors that they could face enforcement
actions and penalties for failing to comply with the mental health parity
rules.
"Importantly, the act makes clear that the [federal] departments have
the authority to audit health plans that have repeated violations of the mental
parity laws," explained consultants Allison Klausner and
Marjorie Martin, principals with Xerox HR Services in New York City.
"Given the heightened risk of a government audit, employers are encouraged
to review vendor agreements, as well as all practices, policies and procedures
relating to mental health parity requirements, to assess compliance with the
existing law and determine if changes are warranted," they advised. "Likewise,
employers that undertake such a review will want to document steps taken."