President Obama and Congress have delivered a gift to small businesses and nonprofit organizations just in time for Christmas . . . although we are still trying to determine exactly what’s inside the box. On December 13th, President Obama signed the 21st Century Cures Act, which included a provision for “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRA). This is in response to an interpretation of the Affordable Care Act by the IRS and DOL two years ago that subjected employers to a $100/day penalty if they reimbursed the premiums of individual health insurance premiums of more than one employee. Many small businesses and non-profit organizations previously provided these reimbursements as a benefit in lieu of providing group insurance policies. So exactly what benefits does the 21st Century Cures Act bring?
Here are the key provisions of the new legislation.
- Waiver of the $100 per day Penalty for Employer Reimbursements on or Before December 31, 2016. It always seemed an incredible prospect that a small business or non-profit organization could face this penalty for reimbursing employee’s individual health insurance policies. We have no knowledge that the penalty was ever actually enforced. But now we have legislation that says this penalty will not apply.
- Establishment of “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRA). These new reimbursement accounts can now be established beginning in 2017. They are permitted not only to reimburse the individual health insurance premiums of employees, but also other medical expenses. However, there are strict requirements for establishing QSEHRA’s.
- The accounts may be established only by employers who have fewer than 50 full-time equivalent employees and who do not offer a group health plan.
- The maximum annual reimbursements are limited to $4,950 for individual coverage and $10,000 for family coverage.
- The plans can reimburse any deductible medical costs of the employee. However, the practical impact of the above dollar limitations is that we expect them generally to be limited to insurance premium reimbursement.
- The plans must be funded solely by the employer and NOT by deductions from employee pay.
- The plan reimbursements are tax-free to the employee provided that the employee has the “minimum essential coverage” as required by the Affordable Care Act.
- The plans must be “accountable”. That is, it must require proof of coverage from the employee before paying or reimbursing the insurance premiums.
- The plan must be nondiscriminatory both in eligibility and in
- The plan must cover all eligible employees once they are employed 90 days. There are exceptions for employees under age 25 and for part-time or seasonal employees. These exceptions are very specific. Please consult us as to how these may apply to your business.
- The plan benefits must be provided on the same terms to all eligible employees. Essentially, this means, the same benefit must be provided to all eligible employees. Some disparity is permitted if insurance premiums vary dependent upon age or number of family members covered. This will be the most difficult provision of the legislation to interpret and hopefully more guidance will be forthcoming.
Please contact us to discuss how these new QSEHRA accounts might be applied in your business or non-profit organization. Merry Christmas to all!