With costs on the rise, small employers often struggle to provide a competitive benefit package to their employees. A provision included in the recently-enacted 21st Century Cures Act overturns ACA-imposed restrictions on small employers and allows qualified small employers to offer health reimbursement funds to their employees. These funds can be used to cover the costs of individual health insurance premiums and to reimburse the out-of-pocket costs for the covered employee and their dependents' health care expenses.
The return of a viable small employer benefit option
A qualified small employer HRA, or QSEHRA, became available on January 1, 2017. A qualified small employer is defined as an employer that (i) has less than 50 employees and (ii) doesn't offer group health plans to any employees. The QSEHRA can be provided to an employee if the employee is participating in a health plan through an insurance carrier or on a state or federal health exchange.
The HRA benefit must be provided consistently to all eligible employees, be funded solely by the employer and require substantiation of any expenses to be reimbursed.
The annual contribution limits for 2017 are $4,950 for an individual and $10,000 for a family. For purposes of these limits, family coverage includes employee and spouse coverage. These amounts may have an annual cost of living adjustment. The HRA plan benefit can be set below the maximums and can include a tiered benefit amount, based on the coverage classes.
Some employees may be excluded from the definition of eligible employees, including employees who:
Requirements, taxation and employer next steps
Employee participants are required to maintain a minimum essential health coverage benefit to have access to the tax advantage of the HRA benefit. Simply put, if the employee does not remain covered by a health plan with minimum essential coverage for any given month, HRA funds could be included as taxable income for that month. Employees can't double-up on the tax benefit by using the advanced premium tax credit (APTC) through the ACA and receive the tax-free qualifying HRA funds during the same time period. Before applying a premium subsidy using the APTC, determination as to whether the HRA benefit is affordable under the ACA rules is needed.
Employers will have reporting requirements, and a general notice of the HRA benefit is to be provided to all eligible employees within 90 days prior to the plan start date. The HRA funding amount is reported on the W-2 for each employee and a Form 1095B is required. The QSEHRA is not subject to the Federal COBRA rules. Before implementing a QSEHRA plan, employers should review all the requirements of this benefit option to ensure compliance across all facets.
QSEHRAs are cost-effective for employers, employees & dependents
The QSEHRA can help supplement employees' individual medical coverage and offset some of their up-front expenses, including premium reimbursement for a qualified plan or reimbursement of expenses applied to high deductibles. This is an exciting win for small employers hoping to remain competitive and to promote retention of their valuable employees!
As new information becomes available, the EnsuredCompliance® solution will offer new QSEHRA information. Stay tuned for updates or have them delivered directly to your inbox. Simply sign up below.