Certain Small Employer HRAs Exempt From ACA Market Reforms

A new law allows certain small employers--those with fewer than 50 full-time equivalent employees who do not offer a group health plan--to offer new "qualified small employer health reimbursement arrangements" to reimburse employees for qualified medical expenses, including individual health insurance premiums, for years after December 31, 2016. The law also includes a notice requirement for these new HRAs.

Qualified Small Employer HRAs

Qualified small employer health reimbursement arrangements (HRAs) are exempt from the ACA's market reforms. To be considered a qualified small employer HRA, the arrangement generally must:

  • Be funded solely by an eligible small employer without salary reduction contributions;
  • Provide, after an eligible employee provides proof of coverage, for the payment or reimbursement of qualified medical expenses (which generally includes individual health insurance premiums) incurred by the employee or his or her family members;
  • Limit annual payments and reimbursements to $4,950 per employee or $10,000 per family (these amounts are prorated when coverage is for less than the entire year); and
  • Be provided on the same terms to all eligible employees.

Note: Large employers and employers who offer a group health plan are not eligible to offer qualified small employer HRAs.

Notice Requirement

An employer funding a qualified small employer HRA for any year must provide a written notice to each eligible employee that includes the following information:

  • A statement regarding the maximum dollar amount of payments and reimbursements that may be made for the year with respect to the employee (the "permitted benefit");
  • A statement that the employee should provide information regarding his or her permitted benefit to any Health Insurance Marketplace to which the employee applies for advance payment of the premium tax credit; and
  • A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to the individual mandate penalty for such month and reimbursements under the HRA may be includible in gross income.

Effective for years beginning after December 31, 2016, the notice generally must be provided no later than 90 days before the beginning of the year in which the HRA is funded--or, if an employee is not eligible to participate in the arrangement as of the beginning of such year, the date on which the employee is first eligible.


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