Before the implementation of the Affordable Care Act, offering pre-tax stipends were quite common, among the nearly 28.5 Million small businesses in the U.S. In fact nearly 17% of small businesses offered them to their employees. However, due to regulatory change, penalties of $100 or over $30,000 annually per employee were enforced.
On December 13, 2016, President Barack Obama signed the 21st Century Cures Act into law. While intended to focus primarily on biomedical innovation, the Act encompassed the Small Business Healthcare Relief Act (SBHRA) or H.R. 5447, which addressed small businesses’ concerns by reviving their ability to make tax deductible contributions to employees, without IRS penalty.
This is achieved through a new hybrid HRA model, known as the Qualified Small Employer Health Reimbursement Arrangement (QSE HRA). QSE HRAs were designed specifically for small employers, with under 50 employees and provide a new cost sharing measure for paying for individual health insurance premiums. In addition, QSE HRAs also pay for or reimburse any documentable healthcare expense. In other words, QSE HRAs were created with the intention of assisting employees with out-of-pocket health insurance and medical costs.
SHBRA provisions went into effect on January 1, 2017. In this article, we will review who is qualified to offer and receive QSE HRAs, how contributions are made, and how they will be sold.
Do All Employers Qualify?
No, small employers with less than 50 employees that do not already offer group health plans, to their employees, can offer QSE HRAs; currently, the law restates the Affordable Care Act’s small business definition. Small employers that choose to offer QSE HRAs must offer them to all full-time employees. However, exceptions apply to those full-time employees that have not completed 90 days of work, are under 25 years of age, or are covered under a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may be excluded. Additionally, all employees must be able to provide proof of having minimum essential health insurance to meet the requirements of the individual mandate.
Unlike regular HRAs, individuals that terminate coverage while covered by a QSEHRA dont have COBRA continuation rights. This means that an employer does not need to offer COBRA on a QSEHRA. QSEHRAs are also exempted from certain other legal requirements that would normally apply to a group health plan such as the no annual limit, preventive care and adult child mandates under the ACA; the requirement to provide a Summary of Benefits and Coverage; and ACA reporting under §6055 . However, many other legal requirements do still apply, including the requirement for an SPD and Plan Document; HIPAA Privacy and Security rules; and the Cadillac Tax .
To offer a QSE HRA, an employer will need to:
- Determine their contribution amount;
- Prepare a notice for employees regarding coverage;
- Provide notice to all eligible members;
- Require participating employees to provide proof of insurance coverage. 
Who Pays for It?
QSE HRAs must be solely funded by the employer and all contributions must be the made in the same amount for all eligible employees; the amounts can vary based on the price of the insurance policy. The maximum reimbursement will be $4,950 for single coverage and $10,000 for family coverage. These amounts will be adjusted annually. Current guidance, suggests that employees will not be able to pay their share of any individual health insurance premiums that are not covered by the QSEHRA, through pretax payroll deductions . However, the Internal Revenue Service (IRS) will need to provide additional clarification to know for sure.
Does this Impact Subsidies?
Employees can not apply for federal premium subsidies available through the marketplace and employer QSEHRA allotments in full toward their premium. If an employee qualifies for advanced premium tax credits (APTC), the amount of their monthly subsidy will be reduced dollar by dollar for any funds that their employer provides through a QSEHRA.
Where do Broker’s fit into the QSE HRA Opportunity?
This is open to interpretation, however the opportunity to sell is significant. Property and casualty insurers will have the opportunity to sell QSE HRAs to their clients, adding value to established relationships. Benefit advisors, specifically those selling in the private exchange market, will gain the prospect of enrolling new consumers into these hybrid plans. In addition, advisors that work with trade groups will also benefit, as members find value in a “turnkey program to help employees manage medical premium costs” . If your clients are not offering Health Savings Accounts (HSAs) to their employees, they may soon become late adopters according to Lynn Asinof at the Boston Globe. Welltheos can help you prevent this.
The views and opinions expressed by the authors on this blog website and those providing comments are theirs alone, and do not reflect the opinions of Softheon, Inc. (dba Welltheos) or any employee thereof.
I earned my BAA from the State University of New York at Stony Brook and MBA in Healthcare Administration from the University of Ohio (Athens). I was born and raised on Long Island, NY and enjoy capturing what the island has to offer through photography.
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