Under the Affordable Care Act, employers have generally been prohibited from reimbursing employee health insurance costs. However, beginning in 2017, employers can once again use pre-tax funds to reimburse employee health costs, including insurance. Such Health Reimbursement Arrangements (HRAs) have several conditions. A few of the major ones:

  • HRAs are limited to businesses with 50 or fewer full-time equivalent employees.
  • Employers must reimburse the same amount to every employee (with some exceptions and variances allowed for family status);
  • Annual contributions are capped at $4,950 for single employees and $10,000 for employees with families.
  • Employees must maintain minimum essential health insurance coverage for their reimbursements to be tax-free.
  • Employers may not provide a group health insurance plan at the same time.

These plans are not easy to self-administer. Most employers will need to use a third party administrator, so there is some cost involved. Still, HRAs may be a good option for many employers looking to provide tax-free employee health benefits without the high cost of a group health plan.