The Senate Passes the 21st Century Cures Act
Qualified Small Businesses Can Provide  Health Reimbursement Arrangements (HRAs) to Employees  
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The Senate passed the 21st Century Cures Act, a comprehensive healthcare package on December 7, 2016 which President Obama promises to sign. This legislation includes the Small Business Healthcare Relief Act sponsored by Michael Thompson, U.S. Representative for California's 5th congressional district. This provision allows eligible small businesses (50 or fewer employees) to provide workers with Health Reimbursement Arrangements (HRAs) to offset the cost of healthcare. Employees can be reimbursed for certain medical expenses, including monthly healthcare insurance premiums and qualified healthcare expenses, by an employer funded HRA. Small businesses who cannot otherwise afford to provide employees with healthcare insurance will now be more attractive to work for because of this legislation.  

HRAs will be valid for qualified small businesses after December 31, 2016. A defined contribution can be given to employees with pre-tax dollars. The maximum c ontribution employers can make to HRAs is $4,950 for an individual or $10,000 for a family. Some of the stipulations of establishing HRAs include that the small business is not required to follow the Affordable Care Act’s employer mandate and that it does not offer group health insurance as an employee benefit.   Employees that participate in a HRA cannot receive a tax subsidy for health insurance plans purchased through the public healthcare exchange. Employees can use HRA funds to purchase healthcare insurance on the individual market.  

The Department of Treasury issued guidance on September 13, 2013 disallowing businesses from using HRAs as a tax-free means to reimburse employees. Both the IRS and Department of Labor (DOL) found that these arrangements were disqualified under the Affordable Care Act’s annual dollar cap. Employers that continued to offer HRAs risked being penalized by the IRS. The 21st Century Cures Act would nullify those findings for qualified small businesses. Large businesses (more than 50 employees) must still adhere to the recommendations on HRAs issued by the IRS and DOL.  

The 21st Century Cures Act also includes numerous provisions to improve America’s mental health system, fund opioid abuse programs, strengthen Medicare, fund research initiatives by the National Institutes of Health, and streamline the Food and Drug Administration’s review process of medical products.  

Please feel free to contact me at  610.828.1900 or  with questions regarding the 21st Century Cures Act.  

Disclaimer: This article is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code.  We strongly advise you to seek professional assistance with respect to your specific issue(s).                                                                   
Martin C. McCarthy, CPA
Managing Partner
McCarthy & Company, PC