SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Health 
Care Relief Act of 2016’’. 
SEC. 2. EXCEPTION FROM GROUP HEALTH PLAN REQUIRE-
MENTS FOR QUALIFIED SMALL EMPLOYER 
HEALTH REIMBURSEMENT ARRANGEMENTS. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986 AND THE PATIENT PROTECTION AND AF-
FORDABLE CARE ACT.— 
(1) IN GENERAL.—Section 9831 of the Internal 
Revenue Code of 1986 is amended by adding at the 
end the following new subsection: 
‘‘(d) EXCEPTION FOR QUALIFIED SMALL EMPLOYER 
HEALTH REIMBURSEMENT ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—For purposes of this title 
(except as provided in section 4980I(f)(4) and not-
withstanding any other provision of this title), the 
term ‘group health plan’ shall not include any quali-
fied small employer health reimbursement arrange-
ment. 
‘‘(2) QUALIFIED
SMALL
EMPLOYER
HEALTH 
REIMBURSEMENT ARRANGEMENT.—For purposes of 
this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
small employer health reimbursement arrange-
ment’ means an arrangement which—
‘‘(i) is described in subparagraph (B), 
and 
‘‘(ii) is provided on the same terms to 
all eligible employees of the eligible em-
ployer. 
‘‘(B) ARRANGEMENT DESCRIBED.—An ar-
rangement is described in this subparagraph 
if— 
‘‘(i) such arrangement is funded solely 
by an eligible employer and no salary re-
duction contributions may be made under 
such arrangement, 
‘‘(ii) such arrangement provides, after 
the employee provides proof of coverage, 
for the payment of, or reimbursement of, 
an eligible employee for expenses for med-
ical care (as defined in section 213(d)) in-
curred by the eligible employee or the eligi-
ble employee’s family members (as deter-
mined under the terms of the arrange-
ment), and 
‘‘(iii) the amount of payments and re-
imbursements described in clause (ii) for 
any year do not exceed $5,130 ($10,260 in 
the case of an arrangement that also pro-
vides for payments or reimbursements for 
family members of the employee). 
‘‘(C) CERTAIN
VARIATION
PERMITTED.— 
For purposes of subparagraph (A)(ii), an ar-
rangement shall not fail to be treated as pro-
vided on the same terms to each eligible em-
ployee merely because the employee’s permitted 
benefits under such arrangement vary in ac-
cordance with the variation in the price of an 
insurance policy in the relevant individual 
health insurance market based on— 
‘‘(i) the age of the eligible employee 
(and, in the case of an arrangement which 
covers medical expenses of the eligible em-
ployee’s family members, the age of such 
family members), or 
‘‘(ii) the number of family members of 
the eligible employee the medical expenses 
of which are covered under such arrange-
ment. 
The variation permitted under the preceding 
sentence shall be determined by reference to the 
same insurance policy with respect to all eligible 
employees.
‘‘(D) RULES RELATING TO MAXIMUM DOL-
LAR LIMITATION.— 
‘‘(i) AMOUNT PRORATED IN CERTAIN 
CASES.—In the case of an individual who 
is not covered by an arrangement for the 
entire year, the limitation under subpara-
graph (A)(iii) for such year shall be an 
amount which bears the same ratio to the 
amount which would (but for this clause) 
be in effect for such individual for such 
year under subparagraph (A)(iii) as the 
number of months for which such indi-
vidual is covered by the arrangement for 
such year bears to 12. 
‘‘(ii) INFLATION
ADJUSTMENT.—In 
the case of any year beginning after 2016, 
each of the dollar amounts in subpara-
graph (A)(iii) shall be increased by an 
amount equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which the tax-
able year begins, determined by sub-
stituting ‘calendar year 2015’ for ‘cal-
endar year 1992’ in subparagraph (B) 
thereof. 
If any dollar amount increased under the 
preceding sentence is not a multiple of 
$100, such dollar amount shall be rounded 
to the next lowest multiple of $100. 
‘‘(3) OTHER
DEFINITIONS.—For purposes of 
this subsection— 
‘‘(A) ELIGIBLE EMPLOYEE.—The term ‘eli-
gible employee’ means any employee of an eligi-
ble employer, except that the terms of the ar-
rangement may exclude from consideration em-
ployees described in any clause of section 
105(h)(3)(B) (applied by substituting ‘90 days’ 
for ‘3 years’ in clause (i) thereof). 
‘‘(B) ELIGIBLE EMPLOYER.—The term ‘el-
igible employer’ means an employer that— 
‘‘(i) is not an applicable large em-
ployer as defined in section 4980H(c)(2), 
and 
‘‘(ii) does not offer a group health 
plan to any of its employees. 
‘‘(C) PERMITTED
BENEFIT.—The term 
‘permitted benefit’ means, with respect to any
eligible employee, the maximum dollar amount 
of payments and reimbursements which may be 
made under the terms of the qualified small 
employer health reimbursement arrangement 
for the year with respect to such employee. 
‘‘(4) NOTICE.— 
‘‘(A) IN GENERAL.—An employer funding 
a qualified small employer health reimburse-
ment arrangement for any year shall, not later 
than 90 days before the beginning of such year 
(or, in the case of an employee who is not eligi-
ble to participate in the arrangement as of the 
beginning of such year, the date on which such 
employee is first so eligible), provide a written 
notice to each eligible employee which includes 
the information described in subparagraph (B). 
‘‘(B) CONTENTS OF NOTICE.—The notice 
required under subparagraph (A) shall include 
each of the following: 
‘‘(i) A statement of the amount which 
would be such eligible employee’s permitted 
benefits under the arrangement for the 
year. 
‘‘(ii) A statement that the eligible em-
ployee should provide the information de-
scribed in clause (i) to any health insur-
ance exchange to which the employee ap-
plies for advance payment of the premium 
assistance tax credit. 
‘‘(iii) A statement that if the employee 
is not covered under minimum essential 
coverage for any month the employee may 
be subject to tax under section 5000A for 
such month and reimbursements under the 
arrangement may be includible in gross in-
come.’’. 
(2) LIMITATION ON EXCLUSION FROM GROSS 
INCOME.—Section 106 of such Code is amended by 
adding at the end the following: 
‘‘(g) QUALIFIED SMALL EMPLOYER HEALTH REIM-
BURSEMENT ARRANGEMENT.—For purposes of this sec-
tion and section 105, payments or reimbursements from 
a qualified small employer health reimbursement arrange-
ment (as defined in section 9831(d)) of an individual for 
medical care (as defined in section 213(d)) shall not be 
treated as paid or reimbursed under employer-provided 
coverage for medical expenses under an accident or health 
plan if for the month in which such medical care is pro-
vided the individual does not have minimum essential cov-
erage (within the meaning of section 5000A(f)).’’.
(3) COORDINATION WITH HEALTH INSURANCE 
PREMIUM CREDIT.—Section 36B(c) of such Code is 
amended by adding at the end the following new 
paragraph: 
‘‘(4) SPECIAL
RULES
FOR
QUALIFIED
SMALL 
EMPLOYER
HEALTH
REIMBURSEMENT
ARRANGE-
MENTS.— 
‘‘(A) IN
GENERAL.—The term ‘coverage 
month’ shall not include any month with re-
spect to an employee (or any spouse or depend-
ent of such employee) if for such month the em-
ployee is provided a qualified small employer 
health reimbursement arrangement which con-
stitutes affordable coverage. 
‘‘(B) DENIAL OF DOUBLE BENEFIT.—In 
the case of any employee who is provided a 
qualified small employer health reimbursement 
arrangement for any coverage month (deter-
mined without regard to subparagraph (A)), the 
credit otherwise allowable under subsection (a) 
to the taxpayer for such month shall be reduced 
(but not below zero) by the amount described in 
subparagraph (C)(i)(II) for such month. 
‘‘(C) AFFORDABLE COVERAGE.—For pur-
poses of subparagraph (A), a qualified small
employer health reimbursement arrangement 
shall be treated as constituting affordable cov-
erage for a month if— 
‘‘(i) the excess of— 
‘‘(I) the amount that would be 
paid by the employee as the premium 
for such month for self-only coverage 
under the second lowest cost silver 
plan offered in the relevant individual 
health insurance market, over 
‘‘(II) 1⁄12 of the employee’s per-
mitted benefit (as defined in section 
9831(d)(3)(C)) under such arrange-
ment, does not exceed— 
‘‘(ii) 1⁄12 of 9.5 percent of the employ-
ee’s household income. 
‘‘(D) 
QUALIFIED
SMALL
EMPLOYER 
HEALTH
REIMBURSEMENT
ARRANGEMENT.— 
For purposes of this paragraph, the term 
‘qualified small employer health reimbursement 
arrangement’ has the meaning given such term 
by section 9831(d)(2). 
‘‘(E) COVERAGE FOR LESS THAN ENTIRE 
YEAR.—In the case of an employee who is pro-
vided a qualified small employer health reim-
bursement arrangement for less than an entire 
year, subparagraph (C)(i)(II) shall be applied 
by substituting ‘the number of months during 
the year for which such arrangement was pro-
vided’ for ‘12’. 
‘‘(F) INDEXING.—In the case of plan years 
beginning in any calendar year after 2014, the 
Secretary shall adjust the 9.5 percent amount 
under subparagraph (C)(ii) in the same manner 
as the percentages are adjusted under sub-
section (b)(3)(A)(ii).’’. 
(4) APPLICATION
OF
EXCISE
TAX
ON
HIGH 
COST EMPLOYER-SPONSORED HEALTH COVERAGE.— 
(A) IN GENERAL.—Section 4980I(f)(4) of 
such Code is amended by adding at the end the 
following: ‘‘Section 9831(d)(1) shall not apply 
for purposes of this section.’’. 
(B) DETERMINATION
OF
COST
OF
COV-
ERAGE.—Section 4980I(d)(2) of such Code is 
amended by redesignating subparagraph (D) as 
subparagraph (E) and by inserting after sub-
paragraph (C) the following new subparagraph: 
‘‘(D) 
QUALIFIED
SMALL
EMPLOYER 
HEALTH
REIMBURSEMENT
ARRANGEMENTS.— 
In the case of applicable employer-sponsored