Cures Act Puts HRAs Back on the Table for Small Employers



As part of the 21st Century Cures Act (H.R. 34) signed by President Obama Dec. 13, qualified small employers can now set up health reimbursement arrangements for employees.

The law, a bipartisan biomedical innovation measure, is meant to spur new medical treatments by addressing why developing a new drug costs so much, takes so much time and often fails. The legislation also contains a wide-ranging health package on Medicare payments, mental health and $1 billion in state grants to address opioid addiction.

Both the House and Senate passed the bill with overwhelming bipartisan support. The House passed the bill Nov. 30 on a vote of 392-26 and the Senate passed the bill Dec. 7 on a vote of 94-5.

At the end of the massive law is a provision that will allow qualified small employers, those with fewer than 50 employees that don't offer a group health plan, to offer their employees HRAs. 

HRAs are a type of employer-funded, self-insured medical expense reimbursement plan that is non-elective, tax-free and only reimburses medical expenses up to a specified dollar limit.

The law allows only small employers to offer HRAs, and is not applicable to large employers.  Under the ACA, large employers, those with 50 or more full-time employees, must offer employees minimum essential coverage under an eligible employer-sponsored plan. HRAs don't qualify as eligible employer-sponsored plans for large employers.

Compliant HRAs that may be offered by qualified small employers can’t receive any funding through salary reductions and must be funded exclusively from employer contributions. 

Additionally, maximum annual reimbursements can’t exceed $4,950 for individuals or $10,000 for family coverage.

The law overturns previous guidance (Technical Release 2013-03 and IRS Notice 2013-54) which stated that HRAs were not in compliance with the ACA. Under the ACA, non-grandfathered plans must provide certain preventive services without imposing cost-sharing or annual dollar limits, or potentially face penalties. Because HRAs only reimburse medical expenses up to a specified dollar limit, they did not meet the coverage requirements.

Design benefit plans and respond quickly and confidently to a range of potential issues with a free trial to the Benefits Practice Resource Center.