With New Law, Stand-Alone HRAs Now Permitted for Small Employers
On December 13, 2016, the 21st Century Cures Act was signed into law, allowing for small group employers not offering employer-sponsored health plans to offer stand-alone Health Reimbursement Arrangements (HRAs). The change is significant, given that most stand-alone HRAs have been prohibited by the Affordable Care Act since 2014.
This new type of HRA, called a “qualified small employer HRA,” is effective for plan years starting on or after January 1, 2017.
So, what’s this mean?
Employers that currently do not sponsor a health plan may consider implementing a qualified small employer HRA in order to help employees pay individual insurance premiums or qualified medical expenses.
What’s an HRA?
An HRA is an employer-funded arrangement that reimburses employees for certain medical care expenses on a tax-free basis, up to a maximum dollar amount during a coverage period. The employer specifies the amount that s/he will be offering to employees, and employees draw from that amount as they incur qualifying expenses.
How would you set up a qualified small employer HRA?
There are some administrative measures required to implement a qualified small employer HRA, so you’ll likely need a Third Party Vendor to administer the plan (typically, brokers or agents will outsource this service, rather than support with in-house resources). This typically will cost somewhere between $4.50-$9.00 per participant per month. The HRA administrator would be responsible for:
- Providing plan documents and enrolling employees in the plan
- Managing qualifying expenses and disbursements, and updating employee HRA balances as they withdraw funds
- Serving as the employee point of contact for expense questions and other customer service related inquiries.
Most administrators will provide employees with debit cards, with which they can pay their premiums and qualified health expenses (click here for a list of Tax Code Section 213(d) expenses).
Why should small employers consider this?
First, there is a tax advantage for employers that offer HRAs—reimbursements are tax deductible from gross income.
Second, small employers aiming to attract and maintain talented employees can offer an affordable benefit that allows employees greater ability to pay health expenses with tax-free dollars.
Third, with stand-alone HRAs, employers dictate their defined contribution within regulatory limits. There is no concern of annual rate increases found in employer sponsored medical and drug plans.
Where can I learn more?
For a short 3-page bulletin with more specifics on the regulation, associated compliance stipulations, and employer contribution limits, click here, or contact us to learn more about how Benetech can help you set up a qualified small group employer HRA.