Qualified Small Employer HRAs
Congress has passed the 21st Century Cures Act that, among other things, allows small employers to maintain general-purpose, stand-alone health reimbursement arrangements (“HRA”) that will not be considered group health plans. What this means is that for plan years beginning after December 31, 2016, there is an exception to HRA integration rules that applies to Qualified Small Employer HRAs. This exception would allow Qualified Small Employers to reimburse the cost of individual health insurance coverage purchased by employees through an HRA without causing the HRA to become a group health plan subject to the ACA.
A Qualified Small Employer (“QSE”) is an employer that is not an Applicable Large Employer and does not offer a group health plan to any of its employees.
A QSE HRA is an HRA that does not include any employee contribution, whether by salary reduction or otherwise and which provides for payment for or reimbursement of the medical care expenses of an eligible employee (and the employees family members, if applicable). For purposes of the arrangement, an “eligible employee” is any employee of the employer except:
- employees who have not completed 90 days of service;
- employees who have not attained age 25;
- part-time or seasonal employees;
- employees not included in the plan who are included in a unit of employees covered by a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining between such employee representatives and such employer or employers; and
- employees who are nonresident aliens and who receive no earned income from the employer which constitutes income from sources within the United States.
Limited Application: The exception for QSE HRAs is only available to small employers. ALEs must still treat HRAs that provide medical benefits as group health plans. In addition, the exception does not apply to any arrangement (such as a cafeteria plan) which is funded by employee contributions or salary reductions.
The amount of the reimbursement cannot exceed $4,950 for a single employee or $10,000 for an employee and his or her family. These amounts must be prorated for persons not covered for an entire calendar year; they are also subject to inflation-related increases.
The arrangement must be provided on the same terms to all eligible employees. However, the plan benefit may be limited to the cost of the individual policies purchased (assuming that the policies themselves are priced consistently with the ACA.)
In order to obtain benefits under the HRA, the employee would have to present proof of coverage under the individual policies.
Coverage under a QSE HRA affects the amount of any premium tax credit that may be available to an individual depending on whether the coverage is deemed affordable. In addition, coverage under a QSE HRA will be considered taxable income to an employee for any month in which the employee does not have minimum essential coverage.
The cost of coverage under a QSE HRA must be included for purposes of the Cadillac tax on high-cost coverage and also included on Form W-2 reporting.
Employers that fund a QSE HRA must provide a written notice to employees no later than 90 days before the start of the plan year. The notice must include:
- A statement of the amount of the available benefit.
- A statement that the eligible employee should provide the information about the amount of the available benefit to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit.
- A statement that if the employee is not covered under minimum essential coverage for any month the employee may be subject to tax for failing to have coverage for such month and reimbursements under the arrangement may be includible in gross income.
Transition Relief: The IRS had previously provided transition relief for small employers that sponsored HRAs that paid premiums for individual health coverage. That relief is extended to any plan year beginning before January 1, 2017.
- The notice requirement for 2017 plan years can be met by providing it no later than March 13, 2017.
Failure to provide the notice as required can result in a fine of up to $50 per employee per failure, not to exceed $2,500 per calendar year.
Note that a QSE HRA is not considered a health plan for purposes of ERISA or COBRA.
Enhanced Compliance with Mental Health and Substance Use Disorder Coverage Requirements
To assist group health plans in meeting the requirements of mental health parity, the 21st Century Cures Act also requires the Departments of Labor, Treasury and Health and Human Services (“the Agencies”) to issue additional guidance on health plan compliance with the mental health and substance abuse parity rules. The Agencies to provide examples of compliance and non-compliance situations and it drives home the urgency of complying with mental health parity by including a mandate to audit plan documents of plans found to have violated the parity rules five times. Of particular interest to self-insured health plans (and their TPAs) will be guidance on the use of quantitative and non-quantitative limits on benefits and on required disclosures regarding the processes, evidentiary standards and other factors used in applying those limits. Eating disorder benefits were also addressed and must be provided consistent with the parity rules.
Compassionate Communication on Health Insurance Portability & Accountability Act (“HIPAA”)
Also included in the new legislation was the recognition that confusion exists in the health care community regarding permissible privacy practices under HIPAA. Congress acknowledged that this confusion may hinder appropriate communication of health care information or treatment preferences with appropriate caregivers. Therefore, Congress has required the Department of Health and Human Services to issue additional guidance relating to the appropriate uses and disclosures of protected health information (“PHI”). Specifically, they have requested guidance relating to situations that require patient consent and opportunities where patients may object to the release of PHI, as well as, guidance on communications with family members, caregivers and other individuals involved in the patient’s plan of care.