Question: I own a small business and I cannot afford to provide health insurance benefits to my 20 employees, although I would like to give them some money to offset health care expenses. I heard there is a new method for small employers to help employees pay for health care expenses.
Answer: Yes. In December 2016, President Obama signed the 21st Century Cures Act, which will allow small businesses to offer health reimbursement arrangements to provide funds to help employees who purchase individual health plans on the open market. The Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) allow employers with fewer than 50 full-time employees or equivalents that don’t sponsor a group health plan to fund employee Health Reimbursement Arrangements (HRAs). These HRAs can be used by the employee to pay for qualified out-of-pocket medical expenses and for non-group plan health insurance premiums, including premiums for plans purchased on public health care exchanges under the Affordable Care Act (ACA).
Many small employers were stymied when the ACA was passed, and the Internal Revenue Service and Department of Labor issued rules prohibiting small employers from offering “stand alone HRA’s” to reimburse employees who buy nongroup health insurance coverage. Some employers wanted to provide assistance to employees to help with health care costs, but because of those rules, employers were not permitted to establish HRA’s or reimburse employees for insurance premiums or medical expenses. The QSEHRA now provides an opportunity for employers to offer such assistance.
Highlights of this law include:
• The maximum reimbursement for health expenses that small employers can provide through employee QSEHRAs is $4,950 for single coverage and $10,000 for family coverage, to be adjusted annually for inflation.
• Small employers that choose to provide QSEHRAs must offer them to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.
• Generally, an employer must make the same QSEHRA contributions for all eligible employees.
• Employers are required to obtain receipts from an eligible employee proving the employee or dependent’s medical expenses prior to reimbursing such eligible employee under the QSEHRA.
If an employer decides to adopt a QSEHRA, a Notice of QSEHRA availability containing specific terms must be provided to the employee at least 90 days prior to the start of the year, or the start of the new employee’s eligibility. Some of the rules to follow when an employer decides on an amount to contribute to the QSEHRA are:
• The same terms must be offered to each employee. For example, employers cannot pay 100 percent of premiums for managers and 50 percent for the rest of the employees.
• The maximum annual benefit caps are $4,950 for individuals and $10,000 for employee and family contributions, and they must be prorated for employees who are not working a full year.
• Only the employer can contribute to the QSEHRA. The purpose of the QSEHRA is to provide employer-sponsored reimbursement, so the employer cannot reduce the amount of an employee’s pay because the employee accepts the QSEHRA benefit.
While the QSEHRA is good news for some small employers, it is complicated and additional requirements apply, so be sure to obtain competent legal and benefits advice before implementing a QSEHRA.