Beginning in 2016, the 21st Century Cures Act (the “Act”) creates an exception to the Affordable Care Act to allow certain small employers to help employees by reimbursing their individual market medical coverage premiums and certain medical expenses using a Qualified Small Employers Health Reimbursement Arrangement (“QSEHRA”).
An employer may sponsor a QSEHRA if the employer does not offer a group health plan and is not an applicable large employer under Code Section 4980H (an employer or controlled group of employers that exceeds 50 full-time equivalents).
QSEHRAs must be funded solely by employer contributions and can generally reimburse for major medical health insurance premiums and other expenses typically allowed in HSAs and FSAs plans. The QSEHRA cannot, however, reimburse premiums already paid by the employee with pre-tax dollars for another employer’s group health plan. QSEHRA payments and reimbursements are capped at $4,950 for individual coverage and $10,000 for family coverage and all reimbursements must be reported on employees’ W-2. Reimbursements are typically paid to the employee tax free, but the tax benefit may be lost on employees who have failed to purchased Minimum Essential Coverage.
Since QSEHRAs are not considered group health plans, they avoid the compliance requirements of the Public Health Services Act (“PHSA”). However, QSEHRAs must comply with ERISA’s general compliance requirements, which include, without limitation, plan documents, annual reporting, participant notification, and summary plan descriptions. The Act imposes additional requirements including uniformity of benefits and a 90-day notice requirement to eligible employees. Additionally, employees are required to show proof of minimum essential health coverage before participating in a QSEHRA.
QSEHRAs are very attractive to small employers as an alternative to offering a group health plan but they do have some significant limitations. Interested employers would be well-advised to carefully consider the QSEHRA requirements prior to implementation.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
Lucas Murray is an attorney with the law firm of Krugliak, Wilkins, Griffiths & Dougherty Co., LPA, in Canton, Ohio.