While the American people celebrated the month of December in full holiday mode, Congress worked on a last minute gift for us. On Dec. 13, 2016, President Obama signed H.R. 34, the 21st Century Cures Act, into law. While this legislation is poised to bring about significant changes with regard to the discovery, development and delivery of new drugs and medical treatments, it also established significant mental health reforms and various Medicare- and Medicaid related provisions.
But what is particularly interesting to the business community, is the new small employer HRA rule modification, a limited provision that permits small employers to provide stand-alone HRAs in lieu of insurance coverage.
Rule Modification Is Good News For Small Employers
Why should business owners take note of the small employer HRA rule modification? Because prior to the passage of this law, providing your employees with any type of reimbursement arrangement WITHOUT also providing health insurance was a big no-no … one with very costly implications. However, thanks to the small employer HRA rule modification, a few exceptions have been made. Beginning in 2017, the small employer HRA rules now allow a qualified small employer to offer employees a pre-tax dollar amount through a stand-alone HRA for reimbursement of documented medical costs and premiums.
Just keep in mind the following key points:
- This provision is only applicable to small employers or those with fewer than 50 full-time or full-time equivalent employees. But be warned, once you trip the large employer threshold, this option is no longer available. Large employer status is determined annually, so a one month bump above 50 during the year is not going to hurt you.
- Employers still cannot provide cash to their employees for health care without also offering insurance without satisfying these rules.
- This option must be funded 100 percent by the employer. Salary deductions from the employee are not permitted and the annual dollar limitation is set at up to $4,950/single or $10,000/family.
Now, if you do decide to offer this option to your employees, you must pay attention to the fine print which includes:
- An employer must provide a specific written notice to employees prior to offering this option. Doing so gives them the ability to plan appropriately.
- It’s possible that offering this HRA will:
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- Prevent the employee from receiving premium subsidies.
- Require the employer to file a 1095-B for those who take advantage of this option.
- If an employee chooses to take the HRA benefit for a month, but they do not have health insurance for that month, then the HRA benefit is TAXABLE to them regardless of it moving through an HRA.
Remember, because this option is an HRA, employers are required to complete a plan document and do all the due diligence normally required when establishing any other type of health and wellness plan.
Looking Ahead
But you might want to wait before you implement something like this … Change of some sort is coming. Every day we read something a little different about how the next Congress will modify healthcare, but if I were to make some predictions based on the legislative and written policy proposals I have reviewed, I would expect further liberalization of this idea of providing pre-tax cash to workers, though the HSA may become the preferred vehicle to do that.
I’ve also put together a list of other observations/predictions based on my personal research. Just remember that these are solely my own observations and review of what has been proposed and what is likely to be proposed based on what the major players have said and are saying. So, as you are reading, remember to take the following list with a grain of salt.
Some Good Bets For 2017 And Beyond
- The pre-existing conditions policy is likely coming back. The removal of the grand bargain of the ACA will make it very difficult to sustain its abolition. The Trump and Ryan plans indicate its return.
- HSA Nest egg is a thing. Employee and federal money look to be vastly expanding HSA balances. Rules liberalized to allow high balances, full carryovers, tax free transfer at death, and possibly tax free IRA rollovers to HSAs. BUT…..
- Catastrophic coverage to all. $5K-$6K deductibles are trending new normal and it’s possible that these may grow to $10K or more because the ACA limits are likely to be removed. This coverage is only there to pay for catastrophe, not regular care. Regular care you will mostly pay for yourself through your HSA. Coverage in the Gold/Silver range will probably cost you more in premiums than it does today.
- Subsidies for folks over Medicaid eligibility limits will still be in play, though smaller and likely a fixed amount by age. To the extent the new themes seem to incentive coverage, it’s at the Catastrophic coverage level rather than ACA’s silver level.
- Employers allowed to offer cash instead of benefits with fewer restrictions than those outlined in the small employer HRA rules outlined in the 21st Century Cures Act.
- The reversal of individual and business mandates.
- Individual Exchange? Indications are that state based exchanges are a good thing – but with the removal of mandates and phase out of cash incentives, the exodus of insurers from those exchanges look to only intensify. There doesn’t seem to be a proposal yet on how to get insurers back in the game on exchanges, other than removing geographical restrictions on selling insurance.
While it’s probably a pretty safe bet that we can expect some big changes to how insurance will work in America, they will likely be delayed until the 2019 calendar year – though likely enacted in 2017-18. That being said, the end of 2017 will be pretty crazy for many business owners, especially if some major shakeups come down the pike with an effective date of 1/1/18.
In the meantime, employers should expect the 1095 forms to stick around over the next year. And that will mean that premium subsidies will still have to be reconciled.
Be sure to follow Rea on social media or subscribe to our bi-weekly newsletter, Illuminations, for any additional changes that may impact your healthcare obligations. And don’t forget to check in with your business advisor regularly to find out if any new opportunities have come to light to help propel your business forward and strengthen your bottom line.
By Joe Popp, JD, LLM (Dublin office)