/  About Us / Details
December 14, 2016

HRB 124 - Qualified Health Plans and Year-End Reminders (Article)

HRB 124 - Qualified Small Employer HRAs and Year-End Reminders

Released December 14, 2016 I Download as a PDF 

Qualified Small Employer Health Reimbursement Arrangements (HRA)

On December 13, 2016, President Obama signed the 21st Century Cures Act (H.R. 34).  In part, this law re-establishes the ability of small employers, those not subject to the Affordable Care Act’s employer shared responsibility provisions, to provide their employees a stand-alone health reimbursement arrangement (HRA), known as a “qualified small employer HRA”.  In order to establish the qualified HRA, the employer must provide no other health coverage.  The HRA can be used to reimburse health insurance premium for individual coverage purchased either through or outside the marketplace.  As is true for all HRAs, the plan can only be funded with employer dollars.   Following is a summary of the criteria for these qualified HRA plan designs.


For purposes of sponsoring a qualified HRA, an eligible small employer is one who:

  1. Employs fewer than 50 employees on business days during the preceding calendar year (i.e., employers exempt from the ACA’s employer shared responsibility requirements); and
  2. Does not offer group health insurance to its employees.


An eligible employee is defined as any employee of the eligible small employer.  However, certain employees need not be offered coverage under a qualified HRA including:

  • Employees who have not completed 90 days of service; 
  •  Employees who have not attained age 25; 
  • Part-time or seasonal employees; 
  • Employees covered by a collective bargaining agreement where health benefits have been the subject of good faith bargaining; and
  • Employees who are nonresident aliens with no U.S. source of income.


A qualified HRA is an arrangement that:

  1. Is funded solely by the eligible small employer; no salary reduction contributions can be made under this arrangement; and
  2. Provides, following the employee’s proof of coverage, for the payment or reimbursement for medical care expenses, as defined in IRC Section 213(d)), including premium for health coverage through the individual market, incurred by the eligible employee or his/her family members. 

The annual amount of payments and reimbursements is capped at $4,950 for employee-only, or $10,000 for arrangements that provide for payments or reimbursements for the employee’s family members.  Both of these limits are subject to inflationary adjustments. 


The HRA must be made available on uniform basis.  However, certain variations of payments or reimbursements based on family size or age are permitted.  In addition, the amount of available reimbursements are adjusted on a pro-rated basis for employees who enter the HRA mid-year.


Impact of other laws

A qualified small employer HRA would be exempt from the market provisions of the Affordable Care Act.  However, it is important to note that a qualified small employer HRA would still be considered a “group health plan” for purposes of the ACA’s Cadillac tax, scheduled to take effect in 2020; though, it is very probable that the Cadillac tax will be modified or repealed between now and then.


A qualified small employer HRA would not be subject to COBRA continuation of health coverage requirements.


Coordination with ACA subsidies

Any ACA premium tax credit available to an eligible employee would be reduced by 1/12th of the employee’s permitted benefit under the HRA for any month in which the employee is covered by the HRA.   Further, a qualified HRA would be treated as affordable coverage for a month if the excess of the amount that would be paid by the employee as premium for self-only coverage under the second lowest silver plan offered in the relevant individual insurance market, over 1/12th of the employee’s permitted benefit under the HRA does not exceed 1/12th of 9.5% of the employee’s household income.


Reporting and disclosure obligations

The law establishes some reporting and disclosure obligations for a qualified HRA:

  1. Form W-2 reporting.  An employee’s total permitted benefits received under a qualified HRA must be reported on the Form W-2.  The form will be amended to include a box in which to report the amount.
  2. Written notice to employees.  Employers establishing a qualified HRA are required to provide a written notice to eligible employees about the availability of the program.  This notice is to be provided annually no later than 90 days prior to the beginning of the program year.  The notice must include the following type of information:
  • A statement of the amount of the eligible employee’s permitted benefit under the arrangement for the year;

  • A statement that the eligible employee should provide the information relating to his/her permitted benefit amount to any marketplace in which the employee applies for advance payment of the premium assistance tax credit; and

  • A statement that if the employee is not covered under minimum essential coverage for any month, then the employee may be subject to the ACA’s individual shared responsibility penalty for such month, and that reimbursements under the arrangement may be includible in gross income.


Effective date.  This law allows for the establishment of qualified HRAs beginning after December 31, 2016. 


In addition, the law grants relief for HRAs in existence prior to this law’s enactment that would have otherwise been violative of the market provisions of the ACA.


Year-end Reminders


  • Employer Shared Responsibility Provisions  

  • Applicability.  For purposes of the ACA’s employer shared responsibility requirement as well as the reporting and disclosure requirements, applicable large employer (ALE) status is determined each calendar year, based on the average size of the employer’s workforce during the prior year.  Thus, if you averaged at least 50 full-time employees, including full-time equivalent employees, during 2015, you are most likely an ALE for 2016 and are subject to the reporting and disclosure requirements due in early 2017. 
  • Affordability Standard.  For purposes of determining affordability, coverage under an employer-sponsored plan is deemed affordable if the employee’s required contribution to the plan does not exceed 9.66% (indexed for 2016; 9.69 % in 2017) of the employee’s household income for the taxable year, based on the cost of single coverage in the employer’s least expensive plan.  
  • Increase in Excise Tax Penalties.  The chart below reflects the amount of penalties for purposes of calculating the ‘no coverage’ excise tax (IRC § 4980H(a)), and the ‘inadequate or unaffordable’ excise tax (IRC § 4980H(b)) for 2016 and 2017, as well as the proposed amounts for 2018.  These are the excise taxes that could apply if an applicable large employer is found not to have offered health coverage to a full-time employee. 


‘No Coverage’ Excise Tax

IRC § 4980H(a)

‘Inadequate or Unaffordable’ Excise Tax

IRC § 4980H(b)









2018 (proposed)


2018 (proposed)



  • Reporting and Disclosure Obligations

The Forms 1094 and 1095 are used to satisfy the IRC Section 6055 and 6056 reporting requirements. The Form 1094-B and 1095 B-series is used for reporting minimum essential coverage (MEC) by insurers and sponsors of self-funded plans.  The Form 1094-C and 1095-C series is used for reporting employer provided coverage by an applicable large employer subject to the ACA’s shared responsibility requirement.


  • Deadlines
    • The Forms 1094 and 1095 must be filed with the IRS by February 28, 2017 (by March 31, 2017 if filing electronically)
    • The Form 1095 must be furnished to individuals listed in Forms 1094 and 1095 by March 2, 2017.
  •  Other ACA-related Fees
    • Patient-Centered Outcomes Research Institute (PCORI) Fees.  For policy and plan years ending between Oct. 1, 2016, and Oct. 1, 2017, the PCORI fee will be $2.26 multiplied by number of covered lives under policy or plan.  The PCORI fees are paid annually via IRS Form 720 (generally due July 31st of each year).
    • Suspended ACA fees include:
      • Cadillac tax (suspended until 2020);
      • Health insurance provider fee suspended in 2017; and
      • Excise tax on medical devices suspended for sales made from January 1, 2016, through December, 31, 2017. 
  • ACA Cost-Share Restrictions

    The chart below reflects the 2017 inflationary adjustments applicable to out-of-pocket (OOP) limits including deductibles, co-insurance and co-payments in ACA plans.  These cost-share restrictions apply to insured plans offered via the marketplace, and insured and self-funded plans offered outside marketplace.  These amounts differ from the OOP limits applicable to high deductible health plans used in conjunction with a health savings account (HSA).


2017 Inflationary Adjustments




ACA Plans - Out-of-Pocket Limits


Note: For 2018, the proposed OOP limits are $7,350 for self-only; $14,700 for family












Health Savings Accounts









HDHP Annual Deductible





HDHP Annual Out-of-Pocket Limit





Contribution Limit








ACA-required Reporting Reminders



To Whom

Due Date

Form W-2. ACA-required reporting includes:

  • Aggregate cost of health coverage (Box 12, using Code DD). Note, employers filing <250 Form W-2s per year remain exempt from reporting the aggregate cost of health coverage on the Form W-2 until future IRS guidance is issued.
  • Additional Medicare tax withholding on earnings exceeding $200,000 per calendar year (Box 6)

Internal Revenue Service (IRS)



Form W-2 Instructions (2016)

January 31, 2017


Form 720 for purposes of Patient Centered Outcome Research (PCOR) fee


July 31st of each year


ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission Form

If making one payment of the fee, the 2016 form must be filed by November 15, 2016; full fee due by January 17, 2017. If opting to make two payments, Form must be filed by November 15, 2016; the first part of two payments due by January 17, 2017; the second payment due by November 15, 2017.

Centers for Medicare & Medicaid Services (CMS) via www.pay.gov

November 15, 2016


Note: 2016 is the last year of this filing obligation and payment of fee


Additional ACA-Related Disclosure Reminders

Note: This is not an exhaustive list of ACA-required disclosures. For a more descriptive list of notice obligations relating to the ACA and other welfare benefit plans, ask your CBIZ representative for a Chart of Notice Obligations.



To Whom

Due Date

Summary of Benefits and Coverage (SBC)

  • Summary of Benefits and Coverage Template for use before April 1, 2017

(pdf or word)


  • Summary of Benefits and Coverage Template for use on or after April 1, 2017 (pdf or word)





                Note: The model SBC and Uniform Glossary above are the English versions. These model documents are also available in Chinese, Navajo, Spanish and Tagalog from CCIIO’s website

                All plan participants

                From Plan Sponsor to Plan Participants:

                1. Upon application
                2. By the first day of coverage
                3. Within 90 days of enrollment by special enrollees
                4. Upon contract renewal
                5. Upon request


                Advanced 60-day Notice of Material Change in Benefits

                All plan participants

                No later than 60 days prior to any material change in any terms of plan affecting Summary of Benefits and Coverage (SBC) content not reflected in the most recently-provided SBC (other than in connection with renewal or reissuance of coverage)


                Notice of Marketplace Options


                • Model notice for use by employers who offer coverage to some or all employees:
                • Model notice for employers who do not offer health coverage:


                All new hires including full-time and part-time employees, without regard to eligibility status for the health plan

                Within 14 days of date of hire





                Increased Penalties for Certain Compliance Violations



                Prior Penalty Amount

                New Penalty Amount


                Failure to provide Summary of Benefits and Coverage

                Up to $1,000 per failure

                Up to $1,087 per failure


                Failure to file a correct information return

                (Examples: Forms 1094/1095 and W-2)

                $250 for each return

                (total penalty cap of $3M per calendar year)

                $260 per return (total penalty cap of $3,193,000 per calendar year)


                Failure to provide correct payee statement

                (Examples: Forms 1094/1095 and W-2)

                $250 for each return

                (total penalty cap of $3M per calendar year)

                $260 per statement (total penalty cap of $3,193,000 per calendar year)



                About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Kansas City office.



                The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.


                COVID-19 Resources

                Access all COVID-19 related articles to help your busisness respond to the pandemic.

                Insights in Your Inbox