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21 Century Cure Act

21st Century Cures Act Allows Small Employers to Offer Health Reimbursement Arrangements


On December 13, 2016, President Obama signed into law the 21st Century Cures Act. The legislation had overwhelmingly bipartisan support, passing the House by a vote of 392-26 and passing the Senate by a vote of 94-5. The Cures Act, which pays for cancer research, mental health treatments, the fight against opioid abuse, also creates a new type of employer-provided health care coverage – qualified small employer health reimbursement arrangements. Previously, such plans did not meet the stringent requirements of the Affordable Care Act (ACA), otherwise known as “Obamacare,” and were subject to hefty penalties. Now, under the new law, small businesses can offer stand-alone health care reimbursement plans to their employees. H.R. 34 (12/13/2016).



The Internal Revenue Code, the Employee Retirement Income Security Act of 1974 (ERISA), and the ACA, impose various requirements with respect to employer-sponsored health plans (i.e., group health plans). Under the ACA, employers with 50 or more full-time employees are required to provide health insurance to their employees. An employer is generally subject to an excise tax of $100 a day per employee (or $36,500 per employee for a full year) if it sponsors a group health plan that fails to meet any of the applicable requirements.


In Notice 2013-2 and Notice 2015-17, the IRS stated that employer payment plans such as health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs), and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, generally fail to comply with the ACA rules. This effectively prevented small businesses from providing these types of health benefits to its employees, which in turn affected such businesses ability to provide benefits competitive with those of larger employers required to provide health insurance to their employees under the ACA.


Qualified Small Employer Health Reimbursement Arrangements


Section 18001 of the 21st Century Cures Act amends the Code, ERISA, and the ACA to exempt qualified small employer health reimbursement arrangements (QSEHRAs) from certain requirements that apply to group health plans. As a result, such plans can now be offered to employees of small businesses. A QSEHRA is defined as an arrangement offered by an employer that has fewer than 50 full-time employees and that does not offer group health plans to any of their employees. In order to qualify as a QSEHRA, the arrangement must:


(1) be provided on the same terms to all eligible employees of the employer;


(2) be funded solely by the employer without salary reduction contributions;


(3) provide, after an employee provides proof of insurance coverage, for the payment or reimbursement of medical expenses of the employee and family members; and


(4) limit annual payments and reimbursements to specified dollar amounts ($4,950 per year for individuals, and $10,000 for families).


QSEHRAs that meet these requirements are not considered group health plans and are exempt from the various requirements that apply to group health plans. An arrangement does not fail to be provided on the same terms to all eligible employees merely because employees’ permitted benefits vary with the price of a health insurance policy in the individual insurance market based on the ages of the employee and family members or the number of family members covered by the arrangement, provided that the variation is determined by reference to the same insurance policy for all eligible employees.


Coverage and payments under QSEHRAs are excluded from gross income, unless the employee does not have minimum essential health insurance coverage for the month in which the medical care was provided. Employers offering a QSEHRA must notify employees in advance regarding permitted benefits. Additional information reporting is required, including the reporting of benefit information on W-2 forms.

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