Are you a small employer (less than 50 full-time employees, including full-time equivalent employees)? Would you like to get out of the “business of healthcare” as it relates to selecting what plan(s) to offer your employees, administering benefit changes, staying compliant with ERISA, preparing a summary plan description, etc.? Well now you can!
Beginning January 1st, 2017, small employers may provide monies to employees to purchase their own health insurance (within a legal framework) on a pre-tax basis. It’s called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
On December 13, 2016, President Obama signed the 21st Century Cures Act and at the very end is Article 18 which establishes this “new” twist on traditional HRAs. Like any new law, there are many aspects and unknown variables to the QSEHRA which will need further guidance and clarification, but in a nut shell, small employers must follow these rules:
- Establish and maintain general-purpose stand-alone Health Reimbursement Arrangements (HRAs);
- Cannot offer a group health plan to any of its employees;
- Annual benefits under the new QSEHRAs cannot exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered);
- QSEHRAs must be funded solely by employer contributions (employee contributions are not permitted); and
- Can only be used for the reimbursement of Internal Revenue Code §213(d) medical care expenses, including premiums for employees who purchase their own health insurance coverage.
As with all health care legislation, there are reporting and notice requirements but these are minimal compared to the requirements for ALEs (applicable large employers) under the ACA.
If you are a small employer and currently offer a group health plan, you will want to consult with your benefit broker/agent 4-6 months prior to your renewal to determine if offering a QSEHRA is a better option for you than continuing to offer a group health plan.
If you are a small employer and you do not currently offer a group health plan, you now have a great option with the new QSEHRA to be competitive in the attraction and retention of talent. Your employees will now be able to purchase health insurance in the individual marketplace that fits specifically with their individual/family needs with financial assistance from you, satisfying the Individual Mandate of the ACA. As long as the plan purchased provides Minimum Essential Coverage (MEC), millennials might select a lower cost, high-deductible plan, where as an older worker may want to purchase a plan with lower deductibles, co-pays, and better prescription coverage.
Employers and employees both will now be able to benefit from the favorable tax treatment of QSEHRAs. Employers will not be subject to an excise tax and may deduct QSEHRA contributions. Employees receive QSEHRA contributions from their employer on a tax-free basis as contributions are not considered income for tax purposes.
Again, there are many nuances to this new piece of legislation and future guidance will be needed, but small employers now have a choice in how they want to help their employees secure health insurance coverage and comply with the individual mandate. Small employers should begin to weigh their options now for prospective changes in 2017.
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