The 21st Century Cures Act provides an exemption for qualified small employer health reimbursement arrangements (QSEHRAs) from the ACA’s group plan rules generally effective January 1, 2017 (with retroactive relief for 2016 if the plan met certain requirements).  Previously employers were prohibited from providing employees money conditioned on the purchase of individual health insurance with violations possibly resulting in steep penalties of $100 per day per affected employee.

The employers must give notification to each eligible employee generally at least 90 days before the start of the plan year.  Due to the last passage of the law, the notification date for 2017 plans was originally March 13, 2017.  The IRS just announced in Notice 2017-20 that the notification date was extended from March 13, 2017 to at least 90 days after additional guidance is issued regarding the contents of the notification.

Here is an outline of some of the details of QSEHRAs:

  • Employer must meet 2 conditions:
    • Employ on average less than 50 full-time and full-time-equivalent employees (not an ALE)
    • Does not offer a group health plan to ANY of its employees
  • Additional conditions:
    • Funded solely by employer – no salary reduction contributions
    • Offered to all full-time employees, subject to permitted exclusions
    • Employee must have minimum essential coverage and provide proof of coverage for insurance
    • QSEHRA pays or reimburses healthcare expenses and premiums for individual health insurance policies
    • QSEHRA cannot pay or reimburse contributions for any employer-sponsored group coverage
    • 105(h) non-discrimination and exclusion rules apply except for waiting period, which has a 90-day maximum
  • Payments cannot exceed $4,950 (single coverage) or $10,000 (family coverage) per 12 month plan year, prorated for those participating for partial year
    • To be indexed for inflation
  • Employer must notify each eligible employee
    • Notices to be provided at least 90 days before the start of the plan year except by March 13, 2017 for 2017 plans – IRS Notice 2017-20 extends the 2017 notification date to at least 90 days after additional guidance is issued regarding the contents of the notification
  • QSEHRA coverage will be reported on Form W-2, Box 12
    • Informational only – no tax consequences but may affect premium tax credit or individual
    • Required for all employers using QSEHRA – no exemption
  • Effective January 1, 2017 with retroactive relief for 2016 If plan met certain requirements
  • Medicare and Tricare probably count as permitted insurance that can be reimbursed