On December 13, 2016, President Obama signed the 21st Century Cures Act, which will allow small employers to adopt a Qualified Small Employer Health Reimbursement Arrangement, to be coined “QSEHRA.”
QSEHRA will allow certain small employers to offer a standalone health reimbursement arrangement to employees to reimburse health care premiums. Many small employers have struggled to offer even limited health benefits to their employees, and this new act will provide those employers a new option. Previously, this type of arrangement would have violated the Affordable Care Act and could have resulted in a hefty excise tax of $36,500 per person, per year, for reimbursing individual health insurance premiums.
In order to qualify for a QSEHRA, an employer will need to meet all the following requirements:
- Employer is not an applicable large employer (ALE) subject to the employer mandate;
- The QSEHRA is entirely employer-funded; NO employee salary reductions will be permitted; and
- The employer does not currently offer a group health plan to any employees.
Under QSEHRA, reimbursements may only be used for IRC Sec. 213(d)-qualified medical expenses, and QSEHRA benefits must be offered on the same terms to all “eligible employees.”
The following categories of employees will not be eligible to participate in the program:
- Under age 25
- Those in their first 90 days of employment
- Employees covered by a collective bargaining agreement
QSEHRA benefits may be excluded from the employee’s income only if the recipient has proof of minimum essential coverage (individual coverage on or off the exchange is allowed). Annual 2017 QSEHRA benefits may not exceed a maximum of $4,950 for an individual or $10,000 if family members are covered.
Employers offering a QSEHRA will need to provide a new notice of the reimbursement arrangement no later than 90 days before the beginning of the plan year or within 90 days of the legislation enactment. The notice must state the amount of the benefit, instruct the employee to disclose their benefit to the health care exchange, and include a warning if the employee does not have minimum essential coverage for any month of the year.