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President Signs 21st Century Cures Act

Publications - Client Alert | December 13, 2016

President Obama signed the 21st Century Cures Act (the “Act”), following passage by the House and Senate with strong bipartisan approval.  Among other things, the Act amends the Internal Revenue Code (the “Code”) and the Employee Retirement Income Security Act of 1974 (“ERISA”) to allow small employers that do not offer group health insurance coverage to establish a new qualified small employer health reimbursement arrangement (“HRA”) and reimburse employees for medical care expenses. This Client Alert highlights the requirements for a small employer to establish an HRA and reimburse employees for medical care expenses under the Act.


Prior to the Act’s promulgation, stand-alone HRAs were considered noncompliant under federal law.  In Notices 2013-54 and 2015-17, the Internal Revenue Service (“IRS”) concluded that HRAs are group health plans that fail to comply with the Patient Protection and Affordable Care Act’s market reforms that apply to group health plans and were therefore subject to an excise tax.  Additional information on those notices is available here.   

The Act

The Act overrules prior IRS guidance by defining “group health plan” as not including “any qualified small employer health reimbursement arrangement.” This provision applies only to employers with less than 50 full-time employees (a “small employer”); the prior IRS guidance still prohibits stand-alone HRAs for employers with 50 or more full-time employees.

Beginning January 1, 2017, the Act permits small employers to offer HRAs funded solely by the employer to reimburse employees for qualified medical expenses, including health insurance premiums.  To qualify under the Act, the HRA must satisfy certain criteria, including the following:

  1. The employer does not offer group health insurance.
  2. The employer must offer the HRA to all of its eligible employees.

  3. The employer must provide a specified written notice to eligible employees 90 days before the beginning of the year in which the HRA is offered. As transition relief, the notice requirement will be satisfied if the notice is provided within 90 days of the effective date of the Act.

  4. The HRA is funded solely by the employer (no salary reduction contributions are permitted).

  5. The HRA is established to pay for or reimburse employees’ medical expenses, including premiums for individual health insurance coverage or Medicare supplemental insurance.

  6. Payments or reimbursements are limited to $4,950 a year for individuals and $10,000 for an employee and family members, subject to cost-of-living adjustments.

  7. Payments or reimbursements are not treated as employer-provided coverage for any months the employee does not have minimum essential coverage.

  8. The employer must report contributions to the reimbursement arrangement on each employee’s Form W-2.

Action Items

The HRAs may be of interest to small employers.  Employers should take the following actions:

  • Determine whether it is a “small employer” that can establish an HRA.
  • Determine the amount of contributions the employer would like to contribute to the HRA.

  • Prepare and adopt an HRA plan document.

  • Prepare and distribute the specified notice, along with a summary plan description.

  • Prepare and distribute enrollment materials.

  • Establish procedures and processes for receiving, substantiating, adjudicating and paying claims for medical expenses.

  • Update payroll systems to report the HRA contributions on Form W-2.


Additional Information

If you have any questions regarding the Act or would like assistance preparing the HRA plan document, summary plan description, and notices, please contact your Kutak Rock attorney or a member of the Kutak Rock Employee Benefits Practice Group listed below.