New Law Permits Employers to Reimburse Employees For Individual Health Insurance Premiums
On December 13, 2016, President Obama signed the 21st Century Cures Act into law. The new law will allow small employers that do not offer any group health plan to their employees to adopt a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to reimburse employees for premiums they pay for individual insurance policies. The new law is effective January 1, 2017.
NOTE: QSEHRAs are an exception to the ACA requirements and are not part of the ACA. Even if the ACA is repealed and replaced, it is expected that QSEHRA’s will remain valid.
Under the Affordable Care Act (ACA), small employers (those with less than 50 full-time employees, counting full-time equivalents) are not subject to penalties for failing to provide group health plan coverage to their employees. As a result of this exception, as well as the substantial costs of group health plan coverage, many small employers do not offer such coverage. However, many small employers have wanted to do something to help their employees, such as reimbursing employees for premiums they pay for health insurance policies obtained in the individual market. Unfortunately, 2013 guidance from the IRS (Notice 2013-54) ruled that such an arrangement violated the market reform provisions of the ACA, regardless of whether the reimbursements were treated as taxable or not. Since violations of the ACA market reform provisions subject an employer to excise taxes of $100 per day per employee, sponsoring a prohibited reimbursement arrangement could have been a very costly mistake (although the new law also offers some relief in this area for 2015 and 2016).
The new law provides that a QSEHRA will not be considered a group health plan for ACA purposes, such that it will be exempt from the market reform requirements. To qualify as a QSEHRA, the program must meet the following requirements:
- A QSEHRA must be funded exclusively with employer contributions; there is no provision for employee contributions (such as those made under a typical Section 125 cafeteria plan).
- Reimbursements must be limited to $4,950 per year for employee-only coverage and $10,000 per year for family coverage.
- A QSEHRA must be offered to all eligible employees on the same terms. (Exclusions are permitted for employees with less than 90 days of service, employees under age 25, employees covered by a collective bargaining agreement, non-resident aliens, and certain part-time and seasonal employees.)
- The employer cannot offer group health plan coverage to any of its employees.
See also QSEHRA Frequently Asked Questions
QSEHRA Notice Requirements
An employer that adopts a QSEHRA must provide a written notice of the availability of the QSEHRA to each eligible employee at least 90 days before the beginning of each year. While special rules for 2017 and 2018 allowed for later deadlines (since QSEHRAs were new and the rules were still being developed), no special deadline is available for a QSEHRA providing benefits in 2019. Therefore, an employer providing a QSEHRA for 2019 must provide the written notice no later than October 3, 2018.
See also Reminder of Annual QSEHRA Notice Requirement 2018
An employer desiring to offer a QSEHRA will need a written plan document setting forth the terms of the arrangement, along with supporting documents. For a plan document package that meets the requirements of the law, please contact Gary Gunnett at (412) 288-2210 or [email protected].