The U.S. House and Senate recently passed the 21st Century Cures Act of 2016 (Act) and the President has signed it into law. One of the provisions of this Act may have a direct impact on how you offer health insurance benefits to your employees if you are a small business owner.
The provision allows small employers (less then 50 full time equivalent employees) to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). A QSEHRA can be used to facilitate the purchase of individual health insurance coverage (or qualified medical expenses). Prior to this law passing, small employers were prohibited from paying for or reimbursing individual health insurance premiums and could have been subject to a $100 per day per employee discrimination penalty for a violation. Starting January 1st, 2017, a small employer can offer a QSEHRA to its employees as a tax free fringe benefit, which can help with employee recruiting and retention. QSEHRAs are funded through tax deductible contributions made by the employer (no employee contributions are permitted). Employees may use the funds contributed to cover the costs of individual health insurance, including policies purchased through the ACA Marketplace, or other qualified medical expenses.
QSEHRAs do have an annual cap, which will be adjusted by inflation. For 2017, the maximum limit is $4,950 for those with individual coverage and $10,000 for those with family coverage. These limits are prorated by month if an employee is ineligible for part of the year.
For an employee to receive reimbursement for any qualified expenses, an employee must submit proof to the employer that the employee has minimum essential health insurance coverage. The employer must offer this benefit to all eligible employees, but may exclude the following: 1) employees having fewer than 90 days of service with the employer, 2) employees under the age of 25, 3) Seasonal and Part-time employees, and 4) Employees covered under a collective bargaining agreement.
Not later than 90 days before the beginning of a year in which a QSEHRA is offered, the employer needs to provide a written notice to all eligible employees outlining the plan. For 2017 the employer has until March 13, 2017 to issue the notice to the employees. The notice must include the amount of the employee’s benefit for the year. It also needs to include a statement that the employee should inform the Health Insurance Marketplace when applying for insurance. Third, the employee must be informed that there will be a tax on reimbursements for any month he or she does not have minimum essential health coverage.
The employer will need to reporton the employee’s W-2 the amount of permitted benefits provided to the employee. In addition, the QSEHRA is not a group health plan and thus is not subject to the COBRA provisions.
The QSEHRA will impact the employee’s opportunity to receive in full or in part the premium tax credit available on the insurance marketplace.
We do not know what the future of health care will look like under the new federal administration. QSEHRAs provide a viable option for small employers who are not required to provide health insurance under the ACA but, nevertheless, find it in the businesses’ best interest to provide some form of healthcare benefits to their employees. With these complex rules, please reach out to Ketel Thorstenson, LLP for guidance and clarification.