Healthcare

Congress Gives Small Employer Health Reimbursement Arrangements (HRAs) the Green Light

Congress Gives Small Employer Health Reimbursement Arrangements (HRAs) the Green Light

When the Affordable Care Act originally passed, it contained several requirements and penalties that worked against small employers who wished to provide their employees with a health reimbursement arrangement, or HRA, instead of offering a group health plan, but now Congress has passed a law that amends those original requirements.

Now businesses that meet specific criteria will be able to provide reimbursement arrangements for their employees’ medical expenses without being subject to the previously prescribed $100 per day penalty that was in place. 

The new law is called the “21st Century Cures Act”, and though it specifically changes one of the original elements of President Barack Obama’s Affordable Care Act, the modification was something that he approved of.

Under the original terms of Obamacare, these types of reimbursement arrangements were considered violations because they limited the amount of dollar benefits that an employee could receive over the course of a year and they failed to provide certain preventive care services without imposing a cost-sharing requirement. Under the new law, which will take effect on January 1, 2017, businesses that qualify as small employers will be able to provide their employees with health reimbursement arrangements without being subject to fines. 

In order to qualify as a small employer, a business must meet the following eligibility criteria: 

  • It must employ (on average) fewer than 50 full-time or full time equivalent employees without offering them a group health plan. The determination of the number of full time equivalent employees that a business employs is calculated by dividing the number of hours worked by part time employees over the course of a month by 120. That number is added to the number of full time employees the business employees in a month. That number must come to less than 50 on average over the course of a year.
  • To qualify the business must offer the health reimbursement arrangement to all employees that are eligible. Those that do not have to be offered the arrangement include those who have worked less than 90 days, those who are under the age of 25, those who work less then 30 hours per week, and those who are seasonal workers who are employed less than six months per year. It also does not include those who are non-resident aliens or who are covered by a collective bargaining unit.
  • In order to qualify, the business must fund the health reimbursement arrangement without deducting from the employee’s existing salary.
  • The reimbursement arrangement must be based upon proof of medical expenses that have already been provided.
  • The reimbursement arrangement must be limited to $10,000 for those that include family members and $4,950 for those that are strictly for the employee, though this amount will be adjusted for inflation in future years.

For those companies that wish to take advantage of the new law immediately, transitional relief will be available. It is also important to note that funds provided as reimbursement for medical expenses are not to be recorded as income.

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Jeff Donohoe, CPA

Jeff Donohoe, CPA

Jeffrey D. Donohoe CPA is a CPA based in Cleveland, OH. His firm J. Donohoe & Associates LLC has been providing quality, personalized financial guidance to local individuals and businesses. Their specialty is state and local tax (SALT) services and they work with other CPA firms throughout the country consulting on SALT issues. Donohoe & Associates provide tax preparation and accounting services, as well as audits, financial statement, and financial planning.

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