In December 2016, President Obama signed the 21st Century Cures Act into law. The Cures Act allows small employers to offer Health Reimbursement Arrangements (HRAs) to their workforce to help cover the cost of medical expenses and health insurance premiums for themselves and their families. Previously, the Affordable Care Act (ACA) prohibited businesses from offering HRAs for individual insurance premiums.
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.
With the passage of the new law, employers and workers alike have questions about how a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) will affect them. Legal experts are in the process of interpreting the law, but here’s a list of some QSEHRA FAQs and their answers that are generally agreed upon.
Which employers can offer QSEHRAs?
Small employers with fewer than 50 full-time equivalent (FTE) employees AND who do not offer a group health plan to any of their employees can offer QSEHRAs to their staff. An FTE employee is one who works 130 hours per month, or 30 or more hours per week for 120 consecutive days.
Can employers who have a group insurance plan also offer a QSEHRA?
No. The Cures Act does not apply to small employers who offer a group health plan.
What benefits does a QSEHRA cover?
As defined in Section 213(d) of the Internal Revenue Code, a QSEHRA can cover the cost of any documented healthcare expense. In addition, employees can use their QSEHRA to help pay for individual health insurance premiums. One thing to keep in mind is that all covered costs, including medical expenses and insurance premiums, must be documented.
Who can contribute to the QSEHRA?
Like a regular HRA, a QSEHRA is funded solely (100%) by the employer. Therefore, employees cannot contribute and the employer’s contributions are not deducted from the employees’ pay.
Are there contribution limits?
Yes. For single employees, the employer may contribute a maximum of $4,950 annually. For employees with family expenses, the employer may contribute a maximum of $10,000 annually.
What are the health plan requirements for employees?
Employees must purchase a health plan that has minimum essential coverage (MEC), as stated by the ACA. Learn more about minimum essential coverage.
If an individual purchases health coverage without MEC, then they may be taxed and reimbursements from the QSEHRA may be included in their gross income.
Which employees are eligible for a QSEHRA?
Full-time employees who work 130 hours per month, or 30 or more hours per week for 120 consecutive days. Generally, all employees must be offered coverage under the same terms with some exceptions.
Can employees be excluded?
Yes, some employees may be excluded. Employers may exclude the following from receiving a QSEHRA:
- Seasonal employees
- Part-time employees
- Workers who are covered by a collective bargaining agreement in which accident and health benefits were the subject of good faith negotiations
- Employees with less than 90 service days
- Employees who are under age 25
- Certain non-resident aliens
Are individuals who purchase subsidized health insurance affected by QSEHRA?
Yes. For employees who obtain health insurance through a public exchange and qualify for subsidized coverage, they must report the amount in the QSEHRA to the exchange. Their federal subsidy amount will be reduced by the amount in the HRA benefit.
For example, if John Doe qualifies for a $2,000 annual subsidy, and he receives $1,500 in the QSEHRA, then Mr. Doe’s subsidy is reduced by $1,500.
Is a QSEHRA subject to COBRA or ERISA rules?
No. Since a QSEHRA is not a group insurance coverage, employers are not required to offer COBRA coverage or ERISA.
When are QSEHRAs applicable?
Employers may start offering QSEHRAs on or after January 1, 2017. Employers must notify their workforce by March 12, 2017 for 2017 arrangements, and upon eligibility for individuals who become eligible during the year.
Are there administrative requirements for QSEHRA?
Yes. Employers must provide a written notice to their workforce 90 days before the start of the plan year with the following information:
- Amount in the QSEHRA benefit
- Informing employees to notify the exchange of the QSEHRA if they apply for a subsidy
- Consequences of not getting MEC, which may result in taxes and the inclusion of reimbursements in their gross income
- Employers must also include the amount of available QSEHRA benefits on their employees’ W-2s at the end of the year.
If you are interested in establishing a QSEHRA, or have questions if this is right for your company and employees, 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.