New Law Creates the “Qualified Small Employer Health Reimbursement Arrangement”
Since the passage of the Affordable Care Act (ACA), the Internal Revenue Service repeatedly stated that the ACA prohibits employers from reimbursing employee premiums for plans purchased through the individual market (including Healthcare.gov). However, through the recently enacted 21st Century Cures Act (Cures Act), Congress has carved out an exception from this rule for small employers.
The Cures Act creates a new kind of benefit plan called the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The QSEHRA is exempt from certain ACA reforms and therefore may be offered as a standalone benefit to employees without tax penalties. Specifically, a QSEHRA is intended to allow small employers the ability to reimburse employees for the cost of health insurance premiums for individual health insurance plans purchased through the ACA marketplace or by other means. Additionally, reimbursements through a QSEHRA will not automatically disqualify an employee from receiving an ACA tax subsidy for which the employee would otherwise qualify, though QSEHRA benefits will be coordinated to offset the subsidy.
To be eligible to offer a QSEHRA, an employer may not be an Applicable Large Employer as that term is defined by the ACA. This means the QSEHRA is only available to employers with no more than 50 full-time plus full-time equivalent employees during the preceding calendar year. In addition, any employer that offers group health coverage to any of its employees, regardless of size, may not additionally offer a QSEHRA.
Assuming an employer qualifies as a small employer, the QSEHRA plan must then comply with the following:
-The plan must only be funded through employer contributions, without any elective employee contributions whether through a Section 125 plan or otherwise;
-The plan must be offered to all eligible employees on equal terms, excluding employees with less than 90 days of service, part-time employees and seasonal employees, collectively bargained employees, and non-resident alien employees;
-The plan must limit employer contributions to $4,950 per year for employee-only coverage, and $10,000 for employee-plus coverage; and
-The plan may provide for reimbursement of eligible expenses that qualify under IRC § 213(d) incurred by the employee or eligible family members (including premiums).
An employer providing a QSEHRA must provide notice of the arrangement no later than 90 days before the plan year, stating the amount available and describing certain employee obligations in regard to the ACA premium assistance tax credit and minimum essential coverage.
This new benefit is available for plan years beginning on or after December 31, 2016.
This article should not be construed as legal advice and is intended for general information purposes only. If you have any questions regarding this article, you should consult your legal counsel.