Deadline for Health Reimbursement Arrangements Approaching

Back in December, then President Obama signed the 21st Century Cures Act which, among other things, restored the ability of small businesses to offer health reimbursement arrangements without being subject to penalties. The use of such arrangements became effective as of January 1, 2017.  However, instituting such plans is not a one-step process. A number of requirements surround reimbursement plans, and an important deadline is quickly approaching. Here’s what you need to know.

Employers wishing to institute a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), must provide an annual notice to each eligible employee at least 90 days before the beginning of the plan year or, if later, the employee’s initial eligibility date. For 2017, the notice must be provided on or before March 13, 2017. In addition, employers must make note of the following requirements for  QSEHRA status:

1. Only employers that are not Applicable Large Employers — i.e., have less than an average of 50 full-time or full-time equivalent employees for the prior year — are eligible to establish QSEHRAs.
2. The employer must not otherwise offer a group health plan.
3. The QSEHRA must be offered to all full-time employees who have completed at least 90 days of service and are at least 25 years of age. (Certain exclusions are provided for employees who are nonresident aliens, part-time workers, seasonal workers, or those covered by a collective bargaining agreement.)
4. The QSEHRA must be funded exclusively with employer contributions, not employee contributions through salary reduction or otherwise.
5. QSEHRA contributions are limited to $4,950 per year for single coverage and $10,000 per year for family coverage, with the possibility provided for the IRS to permit certain variations based on local insurance costs, age, or family size.
6. The employer may only reimburse qualified medical expenses (detailed in Code Section 213(d)), including health insurance premiums.
7. In order for the QSEHRA reimbursements not to be taxable to the employee, the employee must provide proof that the employee and any included family members have obtained minimum essential coverage from a health insurance exchange or other third-party provider.
8. The notice provided to employees must include the amount of the employee’s benefit, inform the employee that the benefit must be disclosed to any health insurance exchange if the employee is claiming advance premium tax credits, and warn the employee of possible tax penalties if the employee and any applicable family members do not have minimum essential coverage.  Remember, Obamacare’s individual mandate is still in effect.

It’s a lot to work through, but the restored option for small employers to offer health reimbursement arrangements to their employees is a positive change, so we’ll take the good with the bad.  Of course, we may have to readjust again soon: With the new Congress and President in place, both focused on dismantling Obamacare and overhauling the American healthcare system once again, it’s possible that all of the rules surrounding reimbursement arrangements will change again.  We’ll continue to monitor that, but we encourage you to work toward that March deadline if a QSEHRA is in your plans.