The name is cumbersome, but Qualified Small Employer Health Reimbursement Arrangements (“QSEHRA”) represent a real policy change that could benefit small employers.
There has been a recent development and the government has issued an extension of period for furnishing written QSEHRA notice to eligible employees. You can read all about that on our Wisdom Bank page – just look for the headline UBA Update.
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 group medical plan itself; it’s a means for providing tax free reimbursement to employees who have individual medical coverage.
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, for single and family coverage. 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.
Who is eligible?
Although QSEHRAs must generally be offered to all eligible employees on the same terms, the amount of benefits may be varied depending on the price of health insurance in the relevant individual market based on age and family size. QSEHRAs are not subject to COBRA.
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.
The employer may exclude the following employee categories from QSEHRA eligibility:
- Employees under age 25
- Part-time and seasonal employees
- Employees who have less than 90 days of service
- Non-resident aliens without income from sources within the United States
- Employees covered by a collective bargaining agreement if health coverage was a subject of good faith bargaining
An employer that will offer QSEHRAs must provide a notice to its employees with the following information:
- The amount of the QSEHRA benefit
- A statement that if the employee purchases coverage on a Health Insurance Exchange and applies for advance premium credits, the employee must inform the exchange of the QSEHRA coverage
- A statement that if the employee does not have other coverage that constitutes minimum essential coverage, the employee may be subject to penalties under the individual mandate provisions of the ACA, and the QSEHRA reimbursements might be included in the employee’s gross income
If you are interested in establishing a QSEHRA, please contact us at the Cleveland Company. Our specialty is helping small employers navigate the sometimes confusing, and often changing insurance employer benefits rules, regulations and options.