Qualified Small Employer Health Reimbursement Arrangement
The 21st Century Cures Act allows a small employer to offer a “Qualified Small Employer Health Reimbursement Arrangement” (QSEHRA) that may be used by eligible employees for the tax-free reimbursement of medical, vision, dental, and hearing expenses, as well as premiums for individual insurance coverage and Medicare.
QSEHRA reimbursements are tax-free to the employee and tax-deductible for the employer as long as the employee is covered by a health insurance plan that provides the ACA-mandated Essential Health Benefits. Notably, there’s no requirement for QSEHRA dollars to be used for health insurance premiums, it could be used for deductibles, copays, or other medical expenses, but for any reimbursement to be tax-free, the employee must have health insurance (and provide proof of coverage to the employer to affirm this).
To offer a QSEHRA, the employer:
- Must have less than 50 employees during the prior year (not considered an applicable large employer (ALE) subject to the ACA).
- May not offer any group plan (ie. medical, vision, dental).
- Ensure the employee and potentially any covered dependent must have minimum essential health plan coverage (MEC) in order to be eligible for tax-free reimbursement.
- Must maintain a written plan document detailing the benefits of the plan. In addition, you must distribute a written notice to employees 90 days before the beginning of the plan year (or on the date a new enrollee is first eligible).
- Employers may choose which expenses are eligible. As an example, the plan could only reimburse individual health plan premiums for those with individual coverage. Or, it may
reimburse out-of-pocket medical expenses for all eligible employees.
- Plan must be offered on the same terms to all eligible employees other than benefits may vary based on age and family-size to account for variations in the prices of insurance policies.
- Must be funded solely by an eligible employer (employee contributions are not permitted).
- Reimbursement available up to federally annually indexed maximum
- If the QSEHRA constitutes “affordable” coverage, the individual will not receive a subsidy for that month. If the QSEHRA is not affordable, then the subsidy will be reduced
by 1/12 of the maximum annual amount the employee can receive under the QSEHRA.
- Employees are not permitted to waive coverage.
- W-2 reporting of the maximum calendar year benefit is required in Box 12 with code “FF”.
- Must file Form 720 and pay the PCORI fee for an “applicable self-insured health plan” (Part II, 133).
- QSEHRAs are not a COBRA eligible benefit.
FlexBank/Navia Can Help!
Please visit our HRA Overview page for more information.