Tax Tips From Bradstreet & Associates - Recent Changes to Health Insurance Rules

Recent Changes to Health Insurance Rules

Congress passed, and the President recently signed, the 21st Century Cures Act. Among other things, the bill will allow certain small businesses to use health reimbursement arrangements (HRAs) without incurring penalties under the Patient Protection and Affordable Care Act (PPACA). Previously, the IRS had concluded that HRA plans are group health plans that fail to comply with the market reforms that apply to group health plans under PPACA and are therefore subject to the excise tax of $100 per day per affected participant on health insurance employer payment plans that do not comply with the market reforms.The act overrules the IRS position by defining “group health plan” as not including “any qualified small employer health reimbursement arrangement.” Under the act, a qualified small employer HRA must be funded solely by an eligible employer, and there can be no salary reduction contributions under the arrangement. The HRA must provide for the payment of an eligible employee’s expenses for medical care that are incurred by the eligible employee or the eligible employee’s family members. Finally, the amount of payments and reimbursements under the plan for any year cannot exceed $4,950 ($10,000 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee).To be a qualified small employer HRA, the arrangement must be provided on the same terms to all eligible employees, although the act allows benefits under the arrangement to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.To be eligible to offer a qualified small business HRA, the employer must not be an applicable large employer and must not offer a group health plan to any of its employees.The new rules apply to years beginning after Dec. 31, 2016.

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