The 21st Century Cures Act (“Act”), a health bill, was signed into law on December 13, 2016, with an effective date of January 1, 2017. One of the provisions of the Act (Title 18) created a new arrangement that small employers may use to help their employees pay for eligible medical expenses and health insurance premiums – “a qualified small employer health reimbursement arrangement” (“QSEHRA”). Previously, the Affordable Care Act (ACA) did not allow employers to offer health reimbursement arrangements for payment of individual insurance premiums. To be an eligible employer that may offer a QSEHRA, the employer must be a small employer (less than 50 full-time employees or equivalents) and may not offer a group health plan to any of its employees.
This is an option employers may want to consider for subsequent years, as many employers have already made plans for 2017.
To establish a QSEHRA, the following requirements must be met:
Health Plan Requirement for Employees:
Employees must purchase a health plan that has minimum essential coverage (MEC), as stated by the ACA. If an individual purchases health coverage without MEC, then they may be subject to penalties under the individual mandate of the ACA and reimbursements from the QSEHRA may be included in their gross income.
Impact on Premium Tax Credits in the Marketplace Created by the ACA:
Employees who obtain health insurance through the marketplace must report the amount in the QSEHRA to the marketplace. The premium tax credit will be reduced by the amount in the QSEHRA benefit. If the QSEHRA is considered affordable coverage, it may disqualify the employee from any premium tax credit.
Employers must provide an annual written notice to employees no later than 90 days before the beginning of the year or the start of a new employees’ eligibility. If an employer offered a QSEHRA in 2017, a transition provision in the Act allows employers to provide a notice no later than March 13, 2017 (90 days after the date of enactment of the Act). If a Notice is not provided, the employer may be subject to a penalty of $50 per employee per failure with a maximum penalty of $2,500.
The Notice must include the following information:
The employer must report the amount of the QSEHRA benefit on employees’ W-2 forms.
QSEHRAs are not subject to federal continuation coverage requirements. However, state coverage continuation requirements may apply to the QSEHRA.
As QSEHRAs are subject to many new requirements, employers should consult with legal counsel when considering establishing a QSEHRA.