Effective January 1, 2017, a small employer may establish a health reimbursement account (HRA) to reimburse employees who purchase their own health insurance. Previously, the IRS had viewed HRAs as violating the prohibition on annual limits on essential health benefits created by the Affordable Care Act. However, the 21st Century Cures Act, signed into law by President Obama on December 13, 2016, created an exception to that rule.

In order to qualify for the exception, an employer must meet several conditions:

• The employer must have fewer than 50 full-time and full-time equivalent employees. In other words, the employer must not be subject to the requirement to offer coverage to substantially all of its full-time employees.
• The employer cannot offer a separate group health plan.
• The employer must offer the reimbursement to all eligible employees.
• The employer must supply all the funding for the HRA, with no required employee contribution.

 
The HRA contributions are not subject to payroll taxes and are not taxable income to the employee. The reimbursement is limited to $4,950 for individual coverage and $10,000 for family coverage.