QSEHRA-Qualified Small Employer Health Reimbursement Arrangement

Background: Prior to the Affordable Care Act (ACA), some employers used Health Reimbursement Arrangements to help their employees purchase individual coverage. However, the ACA largely prohibited stand-alone HRAs that were not offered in conjunction with a qualified group health plan. On Dec. 13, 2016, the 21st Century Cures Act was signed into law by the Obama Administration. As a result, this law allows small employers that do not maintain a group plan to establish an HRA again to help fund their employee's individual health care plans.

Eligibility: These HRA types are referred to as Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) as an employer must meet two qualifications:

1) The employer is not an applicable large employer (ALE) as defined by the ACA.

2) The employer does not maintain a group health plan for ANY of its employees.

2020 Maximum Benefit Limit: cannot exceed $5,250/year* for self-only coverage or $10,600/year for family coverage
*max dollar limits must be prorated for mid-year coverage starts

QSEHRA Notice Requirements: An employer funding a QSEHRA must provide written notice to each eligible employee within 90 days of the beginning of the year. For employees who become eligible to participate in the QSEHRA mid-year, the notice must be provided by the employee's eligibility date. Section 29831(d)(4)(B) details that the notice should include: (1) a statement of the amount that would be the eligible employee’s permitted benefit under the arrangement for the year; (2) a statement that the eligible employee should provide the information described in clause to any health insurance exchange to which the employee applies for advance payment of the premium tax credit; and (3) a statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment under section 5000A for that month and reimbursements under the arrangement may be includible in gross income. We suggest using CoreDocuments or another online tool that can help you craft the language properly. If you would like assistance setting up/managing this plan, please alert your account manager.

Additional Rules as outlined by the DOL FAQ :

(1) The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement;

(2) The arrangement provides, after the employee provides proof of coverage, for the payment to, or reimbursement of, an eligible employee for expenses for medical care (as defined in Code section 213(d)) incurred by the eligible employee or the eligible employee’s family members (as determined under the terms of the arrangement);

(3) The arrangement is provided on the same terms to all eligible employees of the eligible employer.

Tax Rules: In general, payment or reimbursements from a QSEHRA are not included in employee's taxable wages. However, if an employee does not maintain a health policy that meets “minimum essential coverage” for any month these payments could be treated as taxable wages.