“QSEHRA A New Medical Expense Plan” by Sue Peirce, CPA, MTax | Principal – Audit & Assurance
Qualified Small Employers Health Reimbursement Arrangements (QSEHRA) – NEW JANUARY 1, 2017 and understanding that the waiver of the penalty for offering reimbursement of individual health insurance applies only to years beginning BEFORE December 31, 2016
A QSEHRA is a non-ERISA plan that allows certain small employers to fund accounts for employees which they can then use for payment or reimbursement of eligible medical expenses, including individual insurance premiums.
Previously, employers that offered reimbursement or payment of individual health insurance were subject to an excise tax of $100 per day per affected employee. The 21st Century Cures Act which was signed in December 2016, provides retroactive extension of excise tax relief for reimbursements that meet all of the following criteria:
- Employers that employed on average fewer than 50 full-time and full-time-equivalent employees. If the employer was an ALE any time during the relevant time periods, there is no relief. The Employer is not an applicable large employer (ALE) – as defined under the Affordable Care Act, generally, an FTE is an employee who works 130 hours per month, or 30 or more hours per week for 120 consecutive days;
- Employer arrangements that paid or reimbursed only individual health insurance premiums (or Medicare Part B or D premiums). The relief does not extend to stand-alone HRAs that pay or reimburse medical expenses other than individual health insurance premiums.
As the relief applies only to plan years beginning on or before December 31, 2016, effective January 1, 2017, in order to reimburse employees, Congress granted small businesses owners the ability to establish a stand-alone Health Reimbursement Account (HRA). This new HRA option is an exception to previous legislation deeming all HRAs to be “group health plans” and thus mandating them to be integrated unless they provided only excepted benefits or were retiree only plans.
QSEHRA plans are available only to small employers who meet ALL of the following criteria:
- There are less the 50 fulltime employees (FTEs).
- Employer cannot offer a group health plan to any employees.
- The arrangement is funded solely by the eligible employer. No salary reductions or employee contributions can be made.
- The employee must provide proof of minimum essential coverage to qualify for participation in the QSEHRA (or the employee could be subject to excise fines as discussed below.)
- Amounts of payments and reimbursements are capped at $4,950 for individuals and $10,000 for families (with amounts to be indexed for increase in cost of living).
- QSEHRA must be offered to all eligible employees (may exclude employees who haven’t completed 90 days, attained age 25, are part-time or seasonal, subject to collective bargaining) on the same terms (with the exception that variations are permitted only as they relate to the price of an insurance policy, based on age or number of family members.
- Employees must be provided notice of the QSEHRA at least 90 days before the beginning of the new plan year. For brand new plans as of January 1, 2017, plans have until March 13, 2017 to provide notice to employees. Employees’ permitted benefits must be reported on Form W-2. The notice must include:
- The amount of employee’s annual benefit;
- A statement that the eligible employee should provide the amount of the employee’s annual benefit to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit; and
- A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to tax under Code section 5000A for such month and reimbursements under the arrangement may be includible in gross income.
QSEHRA is Required to be a Written Document
Because a QSEHRA is not a group health plan, employees are still required under ACA to purchase minimum essential coverage. If the employee is not covered by a plan that meets minimum essential coverage requirements for any month, the employee will still be subject to tax for such month and payments or reimbursements will be includible in their gross income. If the QSEHRA benefits meet the ACA definition of “affordable,” it may prevent covered individuals from receiving premium tax credits.
Change in Due Dates and Consideration for your Cashflow Planning
Qualified plan contributions must be deposited no later than the due date of the tax return or the extension. If your business likes to make the plan contribution by the due date of the return, beware of the change in due dues.
A QSEHRA may be an opportunity for you. Contact your trusted advisor at AGP or Sue Peirce at 330.315.7850 or firstname.lastname@example.org for more information.