Stand-Alone HRAs: Again an Option for Small Businesses

In December 2016, President Obama signed the 21st Century Cures Act, a health bill that mainly covers medical research, however, tucked into Title 18 of the bill is a new type of Health Reimbursement Arrangement (HRA) for small companies. Businesses with fewer than 50 full-time employees can now use these tax-advantaged accounts to reimburse employees who purchase individual health plans on the open market.

This is good news for small businesses since the reimbursements are treated as though you are directly paying group health premiums, meaning you won’t owe payroll taxes on the amount and employees don’t pay taxes on the contribution either.

HRAs are not a new concept but most stand-alone HRAs (those not tied to a group health plan) weren’t allowed under the Affordable Care Act. The new HRAs—called Qualified Small Employer Health Reimbursement Arrangements (QSE HRAs)—are stand-alone...