Qualified small employer HRAs get guidance: The IRS answers questions on health reimbursement arrangements, which were reinstated for small employers after PPACA market reform rules generally penalized the popular coverage option.

Author:Bonner, Paul
Position::Health reimbursement arrangements, Patient Protection and Affordable Care Act

With 79 questions and answers and a request for comments, Notice 2017-67 was issued in late October providing guidance on many aspects of the new qualified small employer health reimbursement arrangements (HRAs), by which eligible employers may pay or reimburse medical expenses of employees and their families.

Before being reinstated in modified form by legislation in 2016 (21st Century Cures Act, P.L. 114-255), HRAs had long been familiar to many employers, particularly small businesses, until the "market reform" rules of the Patient Protection and Affordable Care Act of 2010 (PPACA), P.L. 111-148, made them technically subject to a penalty. With the Cures Act, by creating a carve-out from group health plan rules, Congress restored the option for eligible employers, generally, those with fewer than 50 full-time employees or equivalents that do not offer a group health plan to any of their employees. The penalty exception is codified at Sec. 9831(d).

Under a small employer HRA, payments for, or to reimburse, an eligible employee's medical expenses (as defined in Sec. 213(d)) are not includible in the employee's gross income if the employee provides to the employer proof of having minimum essential coverage, as defined in Sec. 5000A(f). The arrangement must be funded solely by the employer, with no salary reduction contributions. The amount of payments and reimbursements is limited per eligible employee to $5,050 per year (in 2018) for self-only coverage and $10,250 for family coverage. Part-time, seasonal, and new (up to their first 90 days of employment) employees, and a few others listed at Sec. 105(h)(3)(B), may be excluded from the HRA, but otherwise, the arrangement must be offered on the same terms to all an eligible employer's employees. Retirees of the employer are not included.

The notice also addresses questions with respect to eligible employers, interaction with the health savings account requirements, groups of employers, and HRA amounts accumulated in prior years or carryover amounts in a flexible spending arrangement.

With respect to eligible employees, the...

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