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Congressional Action Allows Some Employers To Reimburse Individual Health Premiums

The final year-end bill—the 21st Century Cures bill passed Wednesday, December 7 in the Senate with a sweeping vote of 94-5 after passing just a few days ago in the House (392-26).

The President confirms— through a Statement of Administration Policy that he will sign it into law. This pharmaceutical research, innovation, and development bill includes the removal of the prohibition on employer reimbursement of individual health insurance premiums for certain small employers.


  • The IRS’ notice of September 2013 (Notice 2013-54) clarifies that employers may not use a health reimbursement arrangement (HRA) to reimburse health premiums for an employee purchasing their own individual health insurance.
  • The new section of this bill/law, Section 18001—the Exception from Group Health Plan Requirements for Qualified Small Employer Health Reimbursement Arrangements (HRAs), now eliminates the federal prohibition on using a tax-advantaged HRA to reimburse these individual health premiums.


This new provision applies to small employers, i.e. employers who are not applicable large employers (ALEs) or ALE members, i.e. members of a controlled group, and who do not offer a health plan. To qualify, the employer must:

  • Offer the HRA on the same terms to all eligible employees;
  • Fund 100% of the cost, i.e. no employee contribution; and
  • Provide annual payment or reimbursement of expenses to employees, who provide proof of coverage, of no more than $4,950 in a year, or $10,000 if the arrangement covers the family (amounts are subject to an annual inflation adjustment)


Employers may exclude non-eligible employees. Non-eligible employees are those who:

  • have not completed 90 days of service;
  • are under the age of 25
  • are part-time and seasonal employees
  • are covered by collective bargaining agreements with negotiated accident and health benefits
  • are nonresident aliens who receive no US-sourced earned income from the employer

Effective Date

  • Plan years on or after January 1, 2017.




Click here for a downloadable version of this update.