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Friday, December 16, 2016

Small Employers Can Again Offer HRAs

By Thomas Eden

Last week the 21st Century Cures Act was signed into law and effective January 1, 2017. Among many things from a moonshot cure for cancer to funding for substance abuse, the Act allows small employers of less that 50 employees, and who do not offer a group heath care plan, to once again offer Health Reimbursement Arrangements (HRAs) to their employees. These were banned under the Affordable Care Act (ObamaCare).

The 21st Century Cures Act once again makes HRAs permissible for small employers, with some changes. These Q&A should help you decide: 

Q. Who is a qualifying small employer? 
An employer that has fewer than 50 full-time equivalent employees and does not offer a group health plan.

Q. Must all employees be eligible for the HRA? 
No. However, only certain employees may be excluded. For example, the company can exclude employees who have been employed for less than 90 days, are under 25 years old, are part-time or seasonal, are covered by a collective bargaining agreement, or are resident aliens without U.S. source income.

Q. May the employee contribute to the HRA? 
No. Salary reduction contributions are not permitted. The HRA must be funded only by the company.

Q. What expenses can be reimbursed by the HRA? 
Expenses that constitute "medical care," including health insurance premiums, incurred by the employee or one of the employee's family members.

Q. Is there a maximum benefit? 
Yes. The HRA may reimburse up to $4,950 per year for an employee with employee-only coverage, and up to $10,000 per year for an employee with coverage for the employee and at least one dependent. These amounts are pro-rated if the employee is not covered by the HRA for the entire year. (These amounts are indexed to inflation and will increase in future years.)

Q. Are the reimbursements taxable income to the employee? 
No, provided that the employee is enrolled in minimum essential coverage. Reminder: "Minimum essential coverage" includes most individual and group health insurance, but does not include dental-only coverage, vision-only coverage, or coverage for a specified disease or illness.

Q. Must employees lose their unspent HRA balances at the end of year? 
No. A company may design the HRA so that the year-end balance carries over, or not.
Q Is a notice required? Yes. Employees eligible for the HRA on the first day of a given year must be given notice at least 90 days before the first day of the year. However, notice will also be considered timely if it is given within 90 days after the 21st Century Cures Act was adopted.

Common Sense Counsel: so if you are one of the hundreds of employers who gave up on offering group health insurance under ObamaCare, you now have a chance to help your employees with an HRA. Time is critical because you must provide employee notice within 90 days of January 1, 2107 to offer this benefit in 2017. This is exactly what employers do who wish to become a great place to work – again! 

Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at