Thursday, December 15, 2016

Limited Relief Offered for Employer Reimbursement of Individual Health Insurance Premiums

Finding a way onto the very end of the 21st Century Cures Act, signed by President Obama on December 13, 2016, are provisions allowing eligible employers to operate Health Reimbursement Accounts (HRA) on a limited basis without requiring full compliance with the provision of the Affordable Care Act (ACA).  

Under the ACA, an HRA must provide for certain preventative services to be provided free of charge, and it may not establish any annual limits on the dollar amount of benefits available for any individual.  HRA plans integrated with group health insurance plans meeting these two requirements are deemed to fulfill the requirements of the ACA.  However, HRA plans integrated with individual health insurance policies are not deemed to fulfill the requirements of the ACA, even if the individual policies meet the two ACA requirements.  HRA plans integrated with individual health insurance are subject to a penalty of $100 per day per participant since the health plans do not comply with the ACA.  (Notice 2015-17 provided penalty relief through June 30, 2015.)

The above provisions greatly affected and continue to affect nonprofit organizations of all sizes, but they dealt a substantial blow to smaller nonprofit organizations who are unable to justify the cost of the group health plans available to them.  Faced with substantial ACA penalties, many organizations are unable to offer any type of assistance to employees for health insurance.  

The 21st Century Cures Act addresses this issue in two different ways. 

ACA Penalties for Non-Compliant Health Plans
 In regards to the penalties, limited relief from the penalties arising from these rules was previously offered via Notice 2015-17 allowing for penalty relief for employers reimbursing employees for the cost of individual health insurance policies through June 30, 2015.  The "Cures" Act extends this relief for all years beginning on or before December 31, 2016.  For calendar year organizations, this covers all years through 2016.  For fiscal year organizations, it covers all years beginning on or before December 31, 2016.  

Exception to ACA Requirements for Small Employer HRA Plans
In regard to allowing for HRA plans (including those reimbursing for individual health insurance policies), the "Cures" Act creates a Small Employer HRA.  While the Small Employer HRA provides some relief, the relief is limited.   Qualifications of a Small Employer HRA are: 

  • The employer has fewer than 50 employees;
  • The employer may not offer a  group health plan to any of its employees;
  • The plan must be provided to all eligible employees, i.e., employees who are not part time or seasonal, have completed 90 days of services and are 25 or older (this prohibits a plan providing for just one or two employees and not for all eligible employees);
  • The plan must be funded solely by the eligible employer and not through a salary reduction plan; 
  • The plan only covers eligible medical expenses defined by IRC 213(d); 
  • The employer receives confirmation from participating employees that the employee maintains a policy providing minimum essential health coverage; and 
  • The total amount of the payments available during the plan year do not exceed $4,950 ($10,000 in the case of the arrangement providing for expenses of family members.)
Small Employer HRA plans are allowable for years beginning after December 31, 2016.  

Taxation of Payments:  Payments to the employee under the plan will be tax free as long as the employee maintains minimum essential health coverage.  If an employee does not maintain such coverage, the benefits paid under the plan are included in taxable compensation of the employee. 

Notification Requirements:  Employers offering the plans must provide written notice to employees including the (i) amount of the employee's permitted benefit under the plan; (ii) instructions to the employee to provide the plan benefits to any health insurance exchange in cases where the employee is applying for an advance payment of the premium assistance tax credit; and (iii) information regarding the taxable nature of the benefit where an employee does not maintain minimum health coverage.  

The written notice must be provided to employees at least 90 prior to the beginning of a plan year.  Since this is not possible for the 2017 plan year, the notice is required to be provided within 90 days of the enactment of the "Cures" Act or March 13, 2017.  

The new law offers some relief to small employers, but it does not return these employers to a pre-ACA position.  The new law's provision allowing for a monthly benefit of $412.50 to $833.33 may allow for the offset of a significant portion of an individual health plan premium, but it likely will not offset 100% of the premium especially for family plans.  Additionally, the requirement to provide the plan to all eligible employees prohibits an employer from providing the plan solely to one or more key employees, i.e. to an executive director or to a senior pastor.  Since penalty relief has only been granted through 2016, small nonprofit organizations should carefully review the application of the new law and swiftly act to create the plan, if it can be effectively used within the organization.