Health Insurance Reimbursement Arrangements
Back in December, the 21st Century Cures Act was enacted, which provides an exemption from the group health plan requirements for a qualified small employer health reimbursement arrangement. Prior to this Act, a small employer could not offer a payment or reimbursement arrangement to help their employees get health care, without incurring a hefty penalty, as the IRS considered those arrangements to be group health plans that did not satisfy the requirements under the Affordable Care Act. Below, we discuss the specifics of the Act and an update the IRS issued on Feb. 27th.
Under the Act, there is now an exemption for qualified small employers to enable them to bring these arrangements back to their employees. To be eligible for the exemption, an employer cannot average 50 or more full-time and full-time equivalent employees on business days during the preceding calendar year and the employer does not offer a group health plan to any of the employees.
A health reimbursement arrangement qualifies if it pays or reimburses for medical care of eligible employees or covered family members. The employee first must provide proof of coverage, and the IRS may require substantiation. The payments or reimbursements for the year cannot be more than $4,950 for an employee or $10,000 for a family, as adjusted for inflation, and must be prorated for partial years.
The employer funds the arrangement. It cannot allow salary reduction contributions from employees. Also, although some variation is permitted, it must be provided on the same terms to all eligible employees. While all employees may be eligible, the arrangement can be structured to exclude employees if they have fewer than 90 days of service, are under age 25, or are part-time or seasonal workers, union members, or nonresident aliens with no earned income.
Per the Act, at least 90 days before the beginning of each year, you must give written notice to employees who are eligible to participate at the first of the year. The notice requirement is treated as satisfied for 2017 if you provide the notice by March 13, 2017. Other eligible employees must receive notice by March 13, 2017, or as soon as they are first eligible to participate, if later. However, the IRS issued Notice 2017-20 on February 27th giving employers additional time to issue the required notices as guidance has yet to be released on what is to be included in the notices. Once the IRS has issued the notice guidance, employers will have 90 days following the guidance date to issue notices to employees.
Finally, employers must report the amount of the employee’s permitted benefit on Form W-2.
If you have any questions or would like any additional information, please do not hesitate to contact us at 317-241-2999.