Relief For Employers Reimbursing Individual Health Insurance Premiums

 In Blog, latest news

On December 13, 2016, President Obama signed into law the “21st Century Cures Act” which offers relief for employers reimbursing individual health insurance premiums. The new law allows small employers without group medical plans to reimburse individual premiums and other medical expenses of employees under health reimbursement arrangements (“HRAs”)

The High Cost Of Group Health Insurance

Small employers want to offer health benefits to attract and retain quality employees, but over the years, group health insurance premiums have sky-rocketed. Under Obamacare, small employers with less than 50 employees are not required to offer health insurance. As a result, fewer than 54% of small employers offer a group health insurance program today.

 

Group health insurance quotesTo reduce health care costs, many small employers chose to have their employees purchase their own health insurance plan and then reimburse the employee for the premium. However, the IRS ruled this practice of premium reimbursement did not comply with the intent of the Affordable Care Act (ACA).

The penalties for reimbursing employee health insurance premiums were stiff – up to $36,000 per employee. The IRS’ position was problematic for many small employers. However, the “21st Century Cures Act” offers relief and gives small employers another option for providing health benefits to their employees –  Health Reimbursement Arrangements.

What is a Health Reimbursement Arrangement (HRA)?

HRAs are a formal agreement between employer and employee to reimburse medical expenses and health insurance premiums, up to a certain dollar amount each year. The reimbursements are not included as taxable income to the employee and any monies remaining in the in the HRA account can be rolled over to be used in future years. HRA’s are designed in compliance with Section 105 of the IRS code and are considered to be part of a group health plan.

“Qualified Small Employer Health Reimbursement Arrangements” (QSEHRAs), under the new law, differ from traditional HRA’s as they are not considered as group health plans. Reimbursements do not count as income to the employee and the employee will not be required to pay taxes on the contribution. The employer will also not be required to pay payroll taxes on the contribution.

In order to be eligible under the new law, QSEHRAs must satisfy a number of requirements:

1. Employer Eligibility

An employer must:

• have less than 50 full-time employees (including full-time equivalent employees) in the preceding calendar year; and
• not offer a group health plan to any of its employees.

2. Employee Eligibility

The HRA must be provided on the same terms to all eligible employees. “Eligible employees” are all employees except the following:

• employees who have not completed 90 days of service;
• employees who have not attained age 25;
• part-time or seasonal employees;
• employees covered by a collective bargaining agreement
• employees who are nonresident aliens and receive no earned income from the employer

3. Monthly Reimbursement Limits

The HRA provides payment or reimbursement for medical expenses, which includes health insurance premiums as well as out-of-pocket expenses. The total amount of payments and reimbursements cannot exceed $4,950 per year for single coverage and $10,000 annually for family coverage.

Closing Thoughts

The new 21st Century Cures Act clears up a lot of prior confusion about what health insurance reimbursements are acceptable according to ACA. It also provides relief from harsh penalties to employers reimbursing individual health insurance premiums. If you need help with your group health plan or have questions regarding HRA planning, call our office at: 800-514-3513.

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