Effective January 1, 2017, small employers are able to offer a new health insurance reimbursement plan for employee health insurance expenses. “Small” employers are defined under the Affordable Care Act (ACA) as having fewer than 50 full time/full-time equivalent employees.
The new benefit, called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), was part of the 21st Century Cures Act. A small employer that does not offer a health insurance benefit to any of its employees can establish a QSEHRA. Large employers (defined under the ACA as having 50 or more full-time/full-time equivalent employees) are covered by the ACA employer mandate, and are ineligible to set up a QSEHRA.
Here’s how it works. QSEHRAs are a variation on an existing health insurance benefit—health system arrangements (HRAs). Generally, employers offer HRAs in conjunction with their employee high-deductible health insurance plans. Employers fund the HRAs and employees use the funds to cover deductibles, co-pays and related medical care costs. All expenses must be carefully documented. HRA payments are not taxable income for the employee. However, under the ACA, both small and large employers have been prohibited from offering HRAs unless they also provide employee health insurance.
The 21st Century Cures Act changed the rules for small employers. A QSEHRA is a stand-alone HRA established by the employer, coupled with a health insurance policy purchased by the employee.
As with a standard HRA, the employer deposits a defined amount into the QSEHRA account of each participating employee. In order to participate, the employee must have purchased a health insurance policy that meets the ACA definition of minimum credible coverage and provide proof of coverage to the employer. The employee can request payment/reimbursement out of the QSEHRA account for documented medical care expenses, including payment of health insurance premiums. As with HRA payments, QSEHRA payments are not taxable income for the employee.
A QSEHRA must meet the following requirements:
- Participation must be offered to all eligible employees.
- The same terms must be offered to each employee.
- The contribution must be funded entirely by the employer.
- The annual maximum for a QSEHRA contribution for a single employee is $4950, and $10,000 for a family (the contribution limits will be adjusted annually for inflation).
If an employee purchases an insurance policy on an insurance exchange, the employee must notify the exchange of the employer’s QSEHRA contribution. The employer’s QSEHRA contribution will reduce the amount of any ACA premium subsidy for which the employee qualifies.
We anticipate that the IRS will clarify the requirements for QSEHRA plans through issuance of notices and other guidance from time to time.
If you have any questions about the new Qualified Small Employer Health Reimbursement Arrangement benefit, please contact Ruselle W. Robinson.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2017. Posternak Blankstein & Lund LLP. All rights reserved.