Thanks to a sweeping bill signed into law by President Obama, small companies will once again be able to offer stand-alone health reimbursement arrangements (HRAs) without violating the Affordable Care Act (ACA).
But before we dive in, let’s first examine why this “perk” was previously taken away. Essentially, following the passage of Obamacare, the IRS determined that if employers set up a plan that contributes un-taxed money to employees to help them pay for insurance premiums (such is the case with a stand-alone HRA), it constitutes a violation of the law.
In clarifying its position, the IRS said that providing employees with a pre-determined dollar amount in an HRA that they could apply toward the purchase of health coverage in the individual health insurance market violated Obamacare’s ban on lifetime and annual dollar limits on coverage. The agency announced that it would fine employers up to $100 per day, per employee for setting up such a plan, up to a maximum annual penalty of $36,500 per employee.
The new rules, which were ushered in as part of the multi-faceted 21st Century Cures Act, states that beginning January 1, 2017, companies with fewer than 50 full-time equivalent employees will be allowed to start establishing HRAs to provide employees with pre-tax money to pay for health insurance premiums on the open market. Further, the law states that the HRA must be provided on the same terms to all eligible employees, although benefits under the HRA are allowed to vary based on age and family-size variations in the insurance policies employees obtain.