The 21st Century 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.
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, below are a few of the 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 those who do not offer a group health plan to any of their employees.
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 expenses. Additionally, employees can use their QSEHRA to help pay for individual health insurance premiums. All medical expenses, including insurance premiums must be documented and substantiated.
Who can contribute to the QSEHRA?
Like a regular HRA, a QSEHRA is solely funded (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 employee 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. 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.
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 days of service
- Employees who are under the age of 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.
What about employees who currently purchase health coverage on the ACA Marketplace?
With the implementation of a QSEHRA benefit plan Employees who have been purchasing their individual or family health insurance plans on the ACA Marketplace may continue to do so.
Does this impact employees who buy health insurance on the independent market?
Yes. It gives the employee additional funds to pay insurance premiums or to reimburse qualifying medical expenses, if the plan is designed to reimburse IRC Section 213(d) items.
Is a QSEHRA subject to COBRA or ERISA rules?
No. Employers are not required to offer COBRA continuation coverage or ERISA since a QSEHRA is not a group insurance plan
When are QSEHRAs available?
Employers may start offering QSEHRAs on or after Jan. 1, 2017. Employers must notify their workforce by March 12, 2017 for 2017 plans 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.
Additionally, in order to be reimbursed for medical or insurance expenses, employees must provide “proof of coverage” to their employer.
Are there any charges for GMS to administer the QSEHRA?
At this time GMS is not charging a setup or HRA document fee to PEO clients. As the details of employee and employer reporting are released by the IRS, GMS may need to charge employers an administrative cost to process the required reporting at the end of the year. Contact us today to learn more about how the 21st Century Cures Act and a QSEHRA can affect your business.