Benefits

Cures Act Creates New HRA Option for Small Employers

A broad-based healthcare bill signed December 13 by President Obama established a new form of stand-alone health reimbursement arrangement (HRA) for small employers.

Health insurance

Tacked on at the very end of the 21st Century Cures Act (H.R. 34), the “qualified small employer HRA” (QSEHRA) option will be available to employers with fewer than 50 full-time employees that do not offer a group health plan. QSEHRAs are exempt from the “group health plan” definition for purposes of laws such as the Affordable Care Act (ACA) and COBRA.

The bulk of the Cures Act covers areas such as medical research and drug and device approvals, but the law also includes tweaks to mental health parity and Health Insurance Portability and Accountability Act (HIPAA) privacy. “We are bringing to reality the possibility of new breakthroughs to some of the greatest health challenges of our time,” Obama said in signing the legislation, which he noted includes “steps to make sure that mental health and substance use disorders are treated fairly by insurance companies.”

The QSEHRA provisions (Title XVIII) are an apparent response to agency interpretations of the ACA that had the general effect of prohibiting stand-alone HRAs for active employees. Basically, unless an HRA was integrated with a major medical plan that complied with the ACA’s market reforms, such as the ban on annual dollar limits, it would be considered a group health plan with a prohibited dollar limit (i.e., the defined employer contribution).

Effective for plan years beginning in 2017, the Cures Act restores the stand-alone HRA option for employers that are not ACA-defined “applicable large employers” and do not offer a group health plan to any of their employees.

“This bill provides welcome relief which will allow small employers that are not required to provide health insurance to their employees the ability to establish small business [HRAs] where their employees can be reimbursed for certain health expenses, including health insurance premiums,” said William Sweetnam, legislative and technical director of the Employers Council on Flexible Compensation, in a statement provided to BLR®. “Prior to this bill, small employers were not able to assist employees by reimbursing them for health care expenses without suffering a tax penalty even though those employers were small enough that they were not required under the [ACA] to provide health insurance to their employees.”

Like traditional HRAs, a QSEHRA must be funded solely by the employer and reimburse medical expenses as defined by Internal Revenue Code Section 213(e). It must be provided on the same terms to all eligible employees, except that the benefit amount may vary to reflect differences in individual health insurance premiums that are based on age and family size. Employees may be excluded from coverage if they:

  • Are part-time or seasonal;
  • Are younger than age 25;
  • Have worked less than 90 days for the employer;
  • Are nonresident aliens with no domestic earned income; or
  • Are union members covered by a collective bargaining agreement.

The act allows annual QSEHRA contributions of up to $4,950 ($10,000 for family coverage), adjusted for inflation and prorated for partial years.

Required Notice

A QSEHRA sponsor must provide all eligible employees with a notice at least 90 days before the start of the plan year (or 90 days before they become eligible, if in mid-year). The notice must include:

  • The employee’s permitted amount for the year;
  • An instruction to provide that information in any application for an ACA exchange premium subsidy; and
  • A warning that the employee may be taxed under the ACA’s individual mandate, and owe income tax on QSEHRA reimbursements, unless he or she obtains “minimum essential coverage.”

Transition Relief

The Cures Act’s QSEHRA provisions also include transition relief for small employers that reimburse individual health insurance premiums. The Internal Revenue Service previously indicated that such “employer payment plans” were no longer allowed under the ACA but, in Notice 2015-17, granted temporary relief for small employers that offered such arrangements. The act extends this relief through plan years beginning in 2016.

Mental Health Parity

The Cures Act also seeks to beef up enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA). The three responsible agencies are directed to issue a “compliance program guidance document” that includes examples from previous enforcement actions with an explanation of the findings in each case. The document must make recommendations for advancing compliance and encouraging the adoption of “internal controls.”

MHPAEA requires parity in financial requirements (such as copays) and benefit limitations affecting the scope or duration of treatment. Parity must be demonstrated within six categories of benefits. This analysis has proven particularly challenging where “nonquantitative” treatment limitations (NQTLs) are concerned.

Cures Act Title XIII therefore emphasizes nonquantitative limits in its specifications for the enforcement guidance document, and in separate provisions calling for additional guidance to plan sponsors. This guidance is to cover MHPAEA’s disclosure requirements and illustrate how NQTLs may be developed and applied.

The act also directs the U.S. Departments of Labor, Health and Human Services (HHS), and the Treasury to work with the public and insurance regulators on improving MHPAEA-required disclosures, to set up a program for auditing repeat MHPAEA violators, and to develop an action plan for coordinating federal and state enforcement.

HIPAA Privacy

Elsewhere in the mental health portion of the Cures Act, Title XI (“Compassionate Communication on HIPAA”) calls for clarification on the permissible disclosures of health information to family members or other caregivers of patients with serious mental illness. A separate section calls for better integration of HIPAA privacy and HHS’ rules on confidentiality of substance abuse treatment (42 C.F.R. Part 2).

David Slaughter David A. Slaughter, JD, is a Senior Legal Editor for BLR’s Thompson HR products, focusing on benefits compliance. Before coming to BLR, he served as editor of Thompson Information Services’ (TIS) HIPAA guides, along with other writing and editing duties related to TIS’ HR/benefits offerings. Mr. Slaughter received his law degree from the University of Virginia and his B.A. from Dartmouth College. He is an associate member of the Virginia State Bar.

Questions? Comments? Contact David at dslaughter@blr.com for more information on this topic