If you don’t know the answer to the above question, you should for it can be a benefit to both your agency and your small commercial lines customers. QSEHRA stands for “Qualified Small Employer Health Reimbursement Arrangements”, which were created by the 21st Century Cures Act that was signed by President Obama just over three weeks ago. Many of you may be familiar with Health Reimbursement Accounts (“HRA”), which permitted employers to give money tax-free to their employees for use in paying health care related expenses, including, but not limited to, premiums for health insurance. Unlike Section 125 flexible spending accounts, any money left over in a HRA at the end of the year could be rolled over for use in later years.
Before the Affordable Care Act (“ACA”) was passed, HRAs were popular with employers who could not afford to provide group health insurance coverage to their employees, but wanted to offer some help with the payment of medical expenses. With the passage of the ACA, contributions to a HRA could no longer be used to pay for health insurance premiums and the rules regarding for what such contributions could be used became so complex that HRAs fell out of favor.
Under the new law, HRAs that allow for the use of funds contributed to them to pay for health insurance premiums and other health care related expenses of employees are now permitted for some employers with added restrictions. The first part of QSEHRA tells you who those employers are, Qualified Small Employers. These are employers who are not subject to the mandates of the ACA (i.e., those with less than 50 full-time equivalent employees) and who do not offer group health insurance coverage to their employees. As with HRAs, the employer must fund an account on the same terms and conditions for each eligible employee (anyone who has been employed for at least 90 days). Also. like HRAs if the funds are used for covered health care related expenses, they are tax free to the employee, but now only if the employee has minimum essential health insurance coverage as defined by the ACA. If not, any amounts paid out of the QSEHRA are taxable income to the employee.
Each employee must be given an annual notice informing them of the above fact and that if the employee applies for health insurance coverage on a federal or state exchange, they must disclose the amount of the benefit available to them under the QSEHRA, which amount will reduce the amount of any premium tax credit for which the employee may be eligible. The annual notice must also state the amount of money the employer will make available for the employee’s use. That amount is capped at $4,950 a year for the employee, but can go up to $10,000 if the employee can use the funds to pay for health care related expenses for family members. These caps are subject to annual increases if the cost of living index used increases. (Click here for the presentation slides of a webinar that contain more detailed information on QSEHRAs.)
Many of you may be thinking why should I explore setting up a QSEHRA program if the ACA is going to be repealed by the incoming Congress. That will most likely happen, but no one knows when that repeal will actually be effective and what parts of the ACA will be affected by it. In the meantime, the existence of such a benefit would be helpful in keeping current employees and attracting qualified new ones. Whenever ACA repeal actually occurs, an employer who has set up a QSEHRA program should be able to easily convert it to a pre-ACA HRA, as the requirements for the former are more restrictive than for the latter.