21st Century Cures Act Expands use of HRAs by Small Employers

The 21st Century Cures Act (“Act”), passed in late December, 2016, contains provisions for “Qualified Small Business Health Reimbursement Arrangements” (“HRA”). This new HRA would allow eligible small employers who do not offer a group health plan to ANY of their employees to offer a “qualifying HRA” that employees can use to pay for medical care expenses including premiums for individual health policies. This has not been allowed under the Affordable Care Act, and the IRS (as well as DOL) has issued various notices and guidance over the past few years, reiterating this prohibition and the penalties on noncomplying employers. The new changes will be effective January 1, 2017.

The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the HRA provided for family members of the employee.  An employer is eligible to establish a small employer health reimbursement arrangement if that employer (i) is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and (ii) does not offer a group health plan to any employees.

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 HRA to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.

Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year and notify each participant of the amount of benefit provided under the HRA each year at least 90 days before the beginning of each year.

This new provision also provides that employees that are covered by this HRA will not be eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the employer’s HRA.

Such HRAs are not considered “group health plans” for most purposes under the Code, ERISA and the Public Health Service Act and are not subject to COBRA.

This new provision also overturns guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the Affordable Care Act insurance market reforms and were subject to a penalty for providing such arrangements.

The previous IRS and DOL guidance would still prohibit these arrangements for larger employers. The provision is effective for plan years beginning after December 31, 2016.  (There was transition relief for plans offering these benefits that ends December 31, 2016 and extends the relief given in IRS Notice 2015-17.)

The Act includes numerous other provisions including various areas of medical research and devices, HIPAA privacy and security-related projects for the Department of Health and Human Services (HHS); faster approval process for new medications and medical devices by the Food and Drug Administration (FDA); mental health and substance use disorder;  Medicare and Medicaid; and provisions affecting President Obama’s Precision Medicine Initiative and Vice President Biden’s Cancer Moonshot effort ($1.8 billion for cancer research).

For a copy of the new Act, please click on the link:


The HRA provisions are contained in Section 18001 of the Act beginning on page 806.


This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly assume no liability whatsoever in connection with its use. ©2017