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21st Century Cures Act and What It Means to Some

Many churches have wrestled with the Affordable Care Act (ACA). In 2015 and 2016 it was clear that churches with two or more full-time equivalent employees[1] would have to operate under rule changes. One such rule was the elimination of the “reimbursable health care expenses” model[2] that many churches operated under. There were a couple of exceptions—most notably, churches with less than two full-time equivalent employees.

Many churches realized that the amount they had previously offered to staff members as “non-taxable” would now have to be added to the staff members’ compensation and be taxed. A church could explore other options, but simply adding the amount to an employee’s compensation was a more common approach.

In December 2016, Congress enacted the 21st Century Cures Act. If you are interested in reading the entire document, you can go to and enjoy the 400-plus pages. The act addresses many matters, but perhaps the most important to churches is the hold on the $100-a-day penalty for noncompliance. This hold is retroactive, meaning that if a church has been noncompliant with the prior ACA law, no penalty will be assessed.

ACA Law Prior to the 21st Century Cures Act

Prior to the 21st Century Cures Act only a few small exceptions allowed a church to continue with the reimbursement model. If a church did not meet the few exceptions, its options were limited. Some churches stayed with the reimbursement model, at least for a short while, until they could make the necessary changes. This opened those churches to the $100-a-day penalty for noncompliance.

Furthermore, according to the ACA, a church group health plan that reimburses employees for their substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However, the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.

Many churches did not establish a health insurance plan for their employees, but reimbursed employees for premiums paid for health insurance. Some even reimbursed pastors getting health insurance through the market exchange created by the ACA, but under IRS Notice 2013-54, such arrangements are described as employer payment plans and considered to be group health plans subject to the market reforms. IRS Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms, which means that even this arrangement previously would have been subject to the $100-a-day penalty. At one time the IRS provided an extension before the penalty would take effect, but that expired at the end of June 2015.

Why institute this act and make a change from the ACA?

Employers of small companies are not required to provide health insurance coverage to their employees, and many could not afford to do so. Yet many of those same employers previously offered something for their employees, such as a reimbursable plan. When the ACA took effect, it penalized employers of small companies for implementing such a plan to help their employees in some small way. The act states that an employer’s provision of a reimbursement arrangement is not a group health plan and, therefore, is not subject to the group health plan requirements under the ACA. This, in turn, means no $100-a-day penalty (technically an excise tax).

A few things churches should keep in mind to stay in compliance:

  • If a reimbursement arrangement is offered, it must offer the same terms to all eligible employees; for example, $4,950 reimbursement for employees with single coverage or $10,000 for employees with family coverage.
  • The church must not offer a group health plan and be defined as a small employer (less than 50 employees).
  • The church must fund the entire arrangement; no exceptions for employee contributions or salary reductions are allowed.
  • The church must require that an employee provide proof of insurance coverage for the payment or reimbursement of the employee’s or family members’ medical expenses.
  • The amount of payments and reimbursements made by the church for a year cannot exceed specified dollar.
  • At least 90 days prior to the first of the year, the church must notify eligible employees in writing what the amount of the benefit will be. There is a penalty for lack of compliance.
  • The church must also report the benefit amount on each employee’s W-2.

With the anticipation of a “repeal” or “replace” of the Affordable Care Act, more changes and updates are sure to come in 2017. If you have questions regarding the 21st Century Cure Act or the ACA, please contact your church’s accounting professional.

[1] Full-time equivalent (FTE) “is the hours worked by one employee on a fulltime basis. The concept is used to convert the hours worked by several part-time employees into the hours worked by fulltime employees.” In “How to calculate FTEs,” CPEs for CPAs,

[2] In the rest of this document, the plan for reimbursable health care expenses is referred to as the reimbursement model.