QSEHRAs are a popular topic. As an employer, you may be asking, ‘Is a QSEHRA right for my business?’ Here are some things to consider.
In December 2016, President Obama signed the 21st Century Cures Act into law. The Cures Act amended a regulation in the Affordable Care Act (ACA) that prevented employers from providing Health Reimbursement Arrangements (HRAs) to their workforce in order to cover the cost of health insurance premiums.
Employers have many questions regarding QSEHRAs and whether the employer-sponsored benefit is the right fit for their business. For those who find that a group health plan is unaffordable, a QSEHRA may be a great way to offer a valuable health benefit to your employees. Health benefits can be a key component to attracting and keeping a talented workforce and often result in higher workplace satisfaction.
Following is a list of QSEHRA FAQs for small business owners. (Please note that legal experts are still in the process of interpreting the law, so some details may change in the future).
What is a QSEHRA?
QSEHRA stands for Qualified Small Employers Health Reimbursement Arrangement. Under the Cures Act, employers who can offer a QSEHRA are those who employ fewer than 50 full-time people AND do not offer a group health insurance plan.
Companies with more than 50 employees, or those small companies who offer any kind of group health insurance, cannot offer their workforce a QSEHRA.
What can a QSEHRA cover?
According to 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. Prior to the Cures Act, HRA funds could not be used for individual health insurance premiums due to certain provisions of the Affordable Care Act (ACA).
Employees must provide proof of coverage before payments or reimbursements are made for medical care expenses, which includes individual health insurance policies.
Who contributes to a QSEHRA?
A QSEHRA is funded solely (100%) by the employer on a pre-tax basis. Employees are not allowed to contribute and any contributions made to the account are not deducted from the employees’ pay.
Are there contribution limits?
Yes. Employees with individual coverage may receive a maximum of $4,950 annually, while employees with family coverage may receive a maximum of $10,000 annually.
Each employee must receive the same benefit amount, which is dependent on the coverage status. For example, if John Smith and Jane Jones both have family coverage, then John and Jane must receive the same amount.
Must all employees receive a QSEHRA, including temporary and part-time workers?
No, an employer 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
Do COBRA rules apply to QSEHRAs?
A QSEHRA is not a group health insurance plan, therefore employers are not required to offer COBRA coverage.
When are QSEHRAs applicable?
Beginning on or after January 1, 2017, employers may start offering QSEHRAs.
What are the administrative requirements?
Ninety days before the start of the plan year*, employers must provide written notice to their employees 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 Minimum Essential Coverage (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.
*Due to the difficulty with the transition period requiring the 90-day notice prior to the start of the plan year, the IRS issued notice 2017-20. The notice states “An eligible employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 is not required to furnish the initial written notice to those employees until after further guidance has been issued by Treasury and the IRS.”
The Employers Council on Flexible Compensation (ECFC) recently sent a letter to the IRS requesting clarification on several QSEHRA provisions. Areas of requested guidance include the terms ‘group health coverage’, ‘proof of coverage’, ‘premium-only reimbursements’, and the variations in reimbursement amounts, among other things. Read the full letter.
If you’re looking at opening a QSEHRA for your small business, contact DataPath Administrative Services today. DataPath is Arkansas’ leading provider of comprehensive benefits administration.