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Health Reimbursement Arrangements Approved for Small Employers Beginning January 1, 2017

Monday, January 16, 2017   (0 Comments)
Posted by: Pennsylvania Chamber Insurance
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Health CareOn December 13, 2016, President Obama signed the 21st Century Cures Act, which provides for medical research and provisions designed to improve compliance with the Mental Health Parity Act. In addition, the new law exempts qualified small employer health reimbursement arrangements (“HRAs”) from many of the Affordable Care Act (“ACA”) requirements.


In 2013, the IRS released Notice 2013-542, and other guidance, making it clear that employers were prohibited from utilizing an HRA to reimburse individual premiums for employees. The reasoning was that this practice violated various ACA market reforms. Essentially, this notice eliminated the stand-alone HRA. Violation of the prohibition on stand-alone HRAs exposed employers to a potential excise tax of up to $36,500 per person per year.

The 21st Century Cures Act

The new law has effectively created a new type of HRA called the Qualified Small Employer Health Reimbursement Arrangement (“QSEHRA”), which would allow certain employers to reimburse individual health premiums. Before establishing a QSEHRA, employers must consider some key factors:

  • Only small employers that are not considered Applicable Large Employers (“ALEs”) under ACA (those employers under 50 FTE) are permitted to offer a QSEHRA.
  • Small employers that choose to offer a QSEHRA must not offer a group health plan to any employee.
  • The maximum reimbursement for health expenses that small employers can provide, through a SEHRA, is $4,950 for single coverage and $10,000 for family coverage, to be adjusted annually for inflation.
  • Small employers that choose to provide a QSEHRA must offer the QSEHRA to all full-time employees. Exceptions would be to those that have not completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement. Part-time and seasonal workers may also be excluded.
  • Reimbursements will be excluded from taxable income ONLY if the individual has minimum essential coverage (“MEC”) and provides proof to the employer.
  • QSEHRAs would not be subject to COBRA. While this provision takes effect January 1, 2017, it is important to note that any efforts by President-Elect Trump and Congress to repeal the ACA may impact these rules in the upcoming months.

For more information on health care reform, go to

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