Small employers are now able to offer health reimbursement arrangements (HRAs) for their employees, thanks to Section 18001 of the 21st Century Cures Act which was signed by the President on Dec. 13. You’ll start seeing the term “QSEHRA” to describe this type of Qualified Small Employer Health Reimbursement Arrangement. This new HRA is an IRS-approved, employer-funded, self-insured health benefit plan that reimburses out-of-pocket medical expenses up to a maximum amount. It is non-elective, meaning employees cannot contribute to their funds. It must be entirely employer provided, and it can’t be funded through salary reductions.
This law applies only to small employers with less than 50 full-time employees. The total number of employees is based on your previous year’s enrollment. So, if your company had less than 50 employees in 2016, you can start this plan in 2017. This will enable small businesses who don’t offer any health benefits to provide annual medical reimbursements up to $4,950 for individuals or up to $10,000 for family coverage. QSEHRAs can only reimburse documented medical expenses, including reimbursement for individual major medical premiums for 2017. If the employee does not have proof of individual health coverage, then they will not qualify for a reimbursement. Furthermore, the QSEHRA is not available to those participating in a group health plan.
It is important to note that if an employee has a QSEHRA provided by their employer, this may affect their premium subsidies through the marketplace. It ought to be taken into account when individuals and families enroll for coverage, their HRA contribution may reduce the amount they normally receive in subsidies.
There are two reporting requirements for employers offering a QSEHRA to their employees:
- Contribution amount must be included on the employee’s W-2 (however, it is not considered taxable wages)
- Employers must supply a 1095-B form to employees and submit a 1094-B form to the IRS
Employers are also required to submit written notice to all eligible employees at least 90 days prior to the beginning of the new plan year to notify them of the benefit amount. Since the Act did not go into effect until December 13, 2016, the deadline for 2017 will be March 13, 2017 (giving employers 90 days after the bill was signed). The written notice must instruct employees to provide pertinent information about their HRA benefit when applying for any ACA premium tax credit. It will also explain the consequences for employees who do not have the minimum essential coverage, which could result in paying the ACA individual mandate penalty, and subsequently their reimbursements could be included in income.