Qualified Small Employer Health Reimbursement Arrangements

The name is cumbersome but Qualified Small Employer Health Reimbursement Arrangements (“QSEHRA”) represent a real policy change that could benefit small employers.

On December 13, 2016 President Obama signed the 21st Century Cures Act, which contained a number of provisions about cancer research, combating opioid abuse and “other provisions.” The other provision was the creation of QSEHRAs. The law is significant because before its passage, the IRS and DOL both warned employers against paying the cost of individual plans for their employees. These so-called premium reimbursement plans were subject to fines of $100 per day and did not meet Affordable Care Act market reforms. QSEHRAs provide a legitimate way for small employers to establish premium reimbursement plans.

Who can create a QSEHRA?

QSEHRAs are only available for small employers – those not subject to the employer mandate (under 50 full time equivalent employees). They are also only available to small employers who do not offer a group health plan to any employees. That may seem counter-intuitive, but remember: the point of a QSEHRA is to offer an alternative to a group health plan, not a supplement to it. Accordingly, the QSEHRA is not a health plan itself; it’s a means for providing plans to employees. Therefore, there are no COBRA obligations associated with a QSEHRA.

How does it operate?

The employer must completely fund the QSEHRA – no employee contributions are allowed. And the employer reimbursements are capped at $4,950 per year for an individual and $10,000 per year for a family. If the arrangement reimburses medical expenses for an employee’s family members, the higher limit applies. These amounts are indexed to inflation and must be applied on a pro-rated basis for employees who participate in the plan for less than 12 months (such as new hires).

The arrangement can be used to reimburse any medical expense as defined in IRS code 213(d), including the cost of individual health plan premiums. Those reimbursements are tax-free to employee as long as the employee is enrolled in minimum essential health coverage.

A QSEHRA must be offered on the same terms to all eligible employees. The arrangement will not be considered to be offered on different terms just because the reimbursement amounts vary, however. The actual benefit an employee receives can vary based on the cost of individual coverage and number of family members who enroll. The employer can also exclude employees from participating who have not completed 90 days of service and those covered by a collective bargaining agreement. The employer can also exclude employees who are under 25 years of age.

Before beginning a QSEHRA, the employer must provide at least 90 days’ notice to employees. The notice must include a description of the amount of the benefit and inform employees that they must disclose the amount of the benefit to the health insurance exchange when applying for a premium tax credit or cost-sharing offset. It must also tell employees that they may be subjected to a tax penalty under the individual mandate if they do not have minimum essential coverage. The notice must be sent to all mid-year hires on the date they become eligible to participate in the arrangement.

If you are interested in establishing a QSEHRA, please contact Shannon Bappert at sbappert@jwterrill.com.

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