New Health Reimbursement Arrangement Option Exclusively for Qualified Small Employers


New Health Reimbursement Arrangement Option Exclusively for Qualified Small Employers

Jan 6, 2017

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A new employee benefit option was created on December 13, 2016, when the 21st Century Cures Act (the “Act”) was signed into law.  Section 18001 of the Act creates a new health reimbursement arrangement (HRA) for qualified small employers, called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which may be offered for plan years beginning after December 31, 2016.                 

The QSEHRA permits only qualified small employers to pay or reimburse, on a pre-tax basis, qualified medical expenses, as defined in Section 213(d) of the Internal Revenue Code, not otherwise reimbursed and including health insurance premiums.  Expenses may be incurred by eligible employees and their family members up to a maximum annual amount.  This may be a significant and welcome development for small employers trying to save on the cost of providing health benefits to their employees, as it permits qualified employers to offer a reimbursement arrangement without incurring the cost of providing group health insurance coverage. 

The most significant requirements for QSEHRAs are summarized below.

  • Qualified small employers are employers who had less than 50 full-time equivalent employees during the prior plan year, and accordingly are not “Applicable Large Employers” under the Affordable Care Act (ACA), and who do not offer group health insurance to their employees.
  • No salary deferrals are permitted.  QSEHRAs may be funded only by employer contributions.
  • QSEHRA benefits generally must be offered to all eligible employees on the same terms with limited exceptions including employees with less than 90 days of service, those under age 25, and certain part-time and seasonal employees.
  • The maximum amount that the employer may contribute to an employee’s single coverage is $4,950 per year.  For an employee electing family coverage, the employer may contribute up to $10,000 per year.  These maximums will be adjusted annually for increases in the cost of living.
  • Notice to all employees of the employer-sponsored QSEHRA must be provided within 90 days of the applicable plan year or within 90 days of the Act’s December 13th, 2016 enactment.  The employer notice must state: (i) the annual reimbursement amount as set forth in the plan, (ii) that an employee must disclose this benefit information to the Health Exchange if applying for health coverage and seeking advance payment of a premium tax credit, and (iii) that if the employee does not have minimum essential coverage health insurance for any month during the plan year, then any QSEHRA reimbursements for that month may be reportable as gross income on the employee’s W-2.   

If you would like assistance with determining whether you are a Qualified Small Employer under QSEHRA or would like additional guidance on how to offer a QSEHRA to your employees, please contact any Robbins Schwartz attorney.