After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.
To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.
The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
- No salary reduction contributions may be made (i.e., 100% employer-funded).
- Employer must receive proof of employee’s minimum essential coverage.
- Reimbursements must be for qualifying medical expenses.
- Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.
- Employer must offer the same terms to all eligible employees.
- Employees receiving a monthly premium assistance credit (under Code Sec. 36B) are not eligible employees.
- Employer must follow additional requirements as outlined in the Act, if applicable.
When an employer provides a monthly QSEHRA, the employee is not eligible for the premium assistance tax credit because this would be “double-dipping” tax-free benefits. Despite this limitation, there are many employers who can use the QSEHRA as a tax-free medical benefit.
The complete (and very wordy) 21st Century Cures Act can be found here. Section 18001 of the Act discusses the QSEHRA.