Are you a small employer and wondering if you can provide your employees with a standalone health reimbursement plan which is compliant with the Affordable Care Act (ACA)? A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) may be the answer.
What is a QSEHRA?
A QSEHRA is a health reimbursement plan for businesses with less than 50 full-time equivalent employees. Under a QSEHRA plan, employers cannot offer a group health insurance plan to any of their employees. The QSEHRA is funded solely by the employer; employees are not allowed to make salary reduction contributions. The reimbursements made are tax-deductible expenses to the employer and are tax-free benefits to the employees. This arrangement can help businesses control their overall health care spending while also providing a benefit to employees.
For 2019, a QSEHRA allows businesses to reimburse employees up to $5,150 per year for single coverage and up to $10,450 per year for family coverage provided the employees maintain minimum health insurance coverage while receiving QSEHRA payments. This amount is adjusted for inflation every year. An employer may choose to reimburse less than the stated maximum amounts. Typical qualified medical expenses include co-pay for doctor visits, prescriptions, lab work, premiums for health insurance policies, etc. However, employers can limit this list of eligible expenses. For example, an employer could limit reimbursable expenses to health insurance premiums only.
To offer a QSEHRA, employers must notify their employees at least 90 days prior to the start of the year or the start of a new employee’s eligibility. Employers must also provide employees with a summary plan description that describes the plan benefits. The employees should also be notified that in any month if they fail to maintain the minimum essential health coverage, they will have to pay taxes on the benefit received under this plan. Employees must report their QSEHRA benefits to the Marketplace if they apply for premium tax credits.
For small employers who would like to offer a QSEHRA plan for the calendar year 2020, the notification date to the employees would be on or before October 3rd, 2019.
Please contact Wegner CPAs if you would like more information regarding the benefits of adopting a QSEHRA plan for your business.