Dec 22, 201609:30 AMOpen Mic
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Everything small employers need to know about new health insurance option
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Under the 21st Century Cures Act, signed into law on Dec. 13, small businesses with fewer than 50 full-time employees that do not offer a group health plan for their staff can now offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to facilitate the purchase of individual health insurance coverage (or other qualified medical expenses).
Prior to this new legislation, employers were generally prohibited from funding the purchase of individual health insurance coverage by their employees. The ability now to offer QSEHRAs provides a new option for small employers to facilitate employee access to health insurance, which may in turn assist in recruiting and retaining employee talent. QSEHRAs may be offered beginning Jan. 1, 2017.
QSEHRAs are funded through pre-tax contributions made by the employer; no employee contributions are permitted. Employees may use the funds contributed to their QSEHRAs to cover the cost of individual health insurance policies, including health insurance policies purchased through the Affordable Care Act’s Health Insurance Marketplace, or other qualifying medical expenses.
QSEHRAs will be subject to an overall limit on annual contributions. Initially, an employer will be able to contribute up to $4,950 toward employee-only qualified medical care expenses and up to $10,000 toward family qualified medical care expenses. These limits are subject to an annual cost of living adjustment. These limits are prorated by month if an employee is not eligible for the QSEHRA for the entire year.
QSEHRAs will also be subject to a number of additional requirements, including:
- To receive reimbursement from the QSEHRA, an employee must submit proof to the employer that the employee has minimum essential health insurance coverage.
- Employers must provide these arrangements on the “same terms” to all eligible employees.
- The phrase “same terms” is not defined in the law.
- However, the law provides that variations in the arrangements are permitted if the variations are based on the price of an insurance policy, which in turn is based on age and number of family members covered.
- Employers may exclude from a QSEHRA otherwise eligible employees who:
- Have fewer than 90 days of service with the employer;
- Are under the age of 25;
- Are part-time or seasonal;
- Are covered by a collective bargaining agreement that bargained accident and health benefits in good faith; or
- Are non-resident aliens with no earned income from sources within the U.S.
The law also contains important notice requirements for employers if they wish to establish a QSEHRA. Ninety days before the beginning of the year the QSEHRA is being offered, the employer must provide written notice of:
- The amount of the employee’s permitted benefit for the year;
- A statement that the employee should inform the Health Insurance Marketplace of the QSEHRA when applying for insurance through the Marketplace; and
- A statement that employees may be subject to a tax for any month the employee does not have minimum essential health insurance coverage, and reimbursements during those months may constitute taxable income.
As discussed in more detail on the next page, there is transitional relief from these notice requirements for 2017.