Passed swiftly by Congress, the 21st Century Cures Act (H.R. 34) seeks to hasten cures for killer diseases, among other things. President Obama is expected to sign the bill on Tuesday, December 13. One of those other things would seem to advance a goal of the GOP’s plan for further healthcare reform, known as “A Better Way,” which is to encourage the use of health reimbursement arrangements (HRAs). Whether this new HRA provision will survive President-elect Trump’s “repeal and replace” plans remains to be seen. But for now, if signed into law, small employers would have a new tool for designing health plan options for their employees.

The Act creates “qualified small employer health reimbursement arrangement” under Internal Revenue Code Section 9831(d)(2), or, if you like acronyms, the “QSEHRA.” For plan years beginning after December 31, 2016, “small employers” can adopt a QSEHRA for their employees. Here are some of the basic rules:

  • “Small employers” means employers that (i) are not applicable large employers under Sec. 4980H(c)(2), which generally means that they do not have more than 50 full time employees, including full time equivalents, during the prior year, and (ii) do not offer a group health plan to any of their employees.
  • The QSEHRA must be offered to all of the eligible employers’ employees, except that employers may exclude employees: (i) who have not completed 90 days of service; (ii) under age 25; (iii) who are part-time or seasonal; (iv) not included in the arrangement but covered by a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining; and (v) who are nonresident aliens without earned income from sources within the United States.
  • The QSEHRA must be provided “on the same terms to all eligible employees of the eligible employer.” However, benefits under the QSEHRA could be varied based on the price of an insurance policy in the relevant individual health insurance market due to age and family size.
  • The QSEHRA can be funded only by employer contributions, no salary deferrals are permitted.
  • The QSEHRA provides for the payment or reimbursement of expenses for medical care (as defined in Sec. 213(d)) incurred by the eligible employee or the eligible employee’s family members.
  • The maximum benefit under the QSEHRA for any year may not exceed $4,950 ($10,000 in the event the HRA also covers the employee’s family members).
  • Employers must provide a notice to employees about the QSEHRA at least 90 days before the beginning of the year informing them (i) about the amount of the benefit under the QSEHRA, (ii) that they should let the health insurance exchange know of the benefit if they are applying for an advance of premium tax credits, and (iii) that if they do not have minimum essential coverage for any month, they may be subject to tax under section 5000A for such month and reimbursements under the QSEHRA may be includible in gross income.

Remember that the IRS had prohibited stand-alone HRAs. See Notices 2013-54 and 2015-17. However, the Act would save QSEHRAs from that IRS position by removing these arrangements from the definition of “group health plans.” The Act also would amend the definition of group health plan in ERISA Sections 607 and 733 to exclude these arrangements, which includes an exclusion from the requirements under COBRA.

This comes a little late in the game for employers that have already made plans for 2017, but it is an option many small employers may want to consider.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.