In 2013 the IRS determined Health Reimbursement Arrangements did not meet the regulations set forth with the Affordable Care Act. Health Reimbursement Arrangement or HRA is where an employer reimburses an employee for eligible out of pocket medical expenses and individual health insurance premiums after the expense has been incurred. As a result of the IRS banning HRA’s many small businesses were forced to purchase group health insurance or face fees of $100 a day, per employee. This upset many small business owners for group health insurance rates were so high that they could not afford to assist their employees with any healthcare needs.
Soon, great news for small business owners came when the 21st Century Cares Act was passed in December of 2016. This created a new type of Health Reimbursement Arrangement very similar to the previous HRA’s banned. These reimbursements are basically the exact same as previous reimbursements other than they are capped at $4900 for a single employee and $10,000 for family coverage. The 21st Century Cares Act takes into effect for plan years starting after December 31st, 2016.
Many small businesses are thankful for this act, for it gives employers greater flexibility and a more affordable way of supporting coverage for their employees. It allows the small business owners to offer insurance through either the group market or individual market, both in a tax advantaged way.