Authors: Joseph P. Yonadi, Jr. and Nancy R. Chawla
In December 2016, President Obama signed into law the 21st Century Cures Act (Act), giving employers with less than 50 employees a tool to help their employees pay for medical expenses without being subject to the Affordable Care Act’s (ACA) market reform requirements.
Beginning January 1, 2017, small employers may offer Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) to employees who purchased health plans in the individual market. Since the Act exempts QSEHRAs from the ACA’s market reform requirements, QSEHRAs are not subject to the ACA’s coverage and cost-sharing requirement
Small employers must offer a QSEHRA to all eligible employees on the same terms. There are some exceptions as to who is eligible, for example, employees who have less than 90 days of service and part-time and seasonal employees are not eligible employees. Further, the amount of reimbursement may vary depending on the age of the eligible employee or the number of family members covered under the QSEHRA.
Following the same statutory roadmap as an health reimbursement arrangement designed under Sections 105 and 106 of the Internal Revenue Code (Code), a QSEHRA may only be funded by an employer and not by employee salary reduction contributions. QSEHRAs may only be used to pay for qualifying medical expenses up to $4,950 for single coverage ($10,000 if the QSEHRAs is used to reimburse family members).
Small employers are required to provide an annual notice at least 90 days before each plan year stating:
(1) the amount of the employee’s permitted benefit under the QSEHRA for the year;
(2) that the eligible employee should provide information about the QSEHRA reimbursement to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit; and
(3) 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 reimbursement may be included in gross income.
Failure to provide such notices could result in penalty of $50 for each employee, up to $2,500 annually.
With the new Administration taking office, the ACA is clearly in store for significant change; however, the QSEHRA may be a vehicle that has staying power because of its exemption from the ACA’s market reform requirements.
For more information, FAQs in connection with the Act were issued and can be found here: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-35.pdf.