|Title||Qualified Small Employer Health Reimbursement Arrangements Permitted, Beginning in 2017|
|Preview||Qualified Small Employer Health Reimbursement Arrangements Permitted, Beginning in 2017|
Qualified Small Employer Health Reimbursement Arrangements Permitted, Beginning in 2017
On December 13, 2016, President Obama signed the 21st Century Cures Act ("Act") into law. The Act allows qualified small employers to offer a new type of health reimbursement arrangement ("HRA") to help employees pay for their medical expenses, effective January 1, 2017.1 The new arrangement is called a "qualified small employer health reimbursement arrangement" (or a "QSEHRA"). QSEHRAs will not be considered "group health plans" under the Patient Protection and Affordable Care Act ("Affordable Care Act"), so market reform requirements will not apply to QSEHRAs.
Eligible qualified small employers will be allowed to pay or reimburse employees' eligible medical care expenses through a QSEHRA on a pre-tax basis. Employers are eligible to offer a QSEHRA if they (i) are not applicable large employers as defined under the Affordable Care Act2, and (ii) do not offer a group health plan to any of their employees.
A QSEHRA must meet the following requirements:
Notice Requirement. An eligible employer funding a QSEHRA must provide an annual written notice to eligible employees not later than 90 days before the beginning of the year (or, in the case of an employee who is not eligible to participate in the QSEHRA as of the beginning of a year, the date on which the eligible employee is first eligible to participate in the QSEHRA). The Act also includes transition relief for 2017 under which an employer will not be treated as failing to provide a notice as long as the notice is provided no later than 90 days after enactment of the Act (that is, by March 16, 2017). The notice must contain the following information:
If the employer fails to provide the required written notice (unless it can be shown the failure is due to reasonable cause and not willful neglect), the employer is liable for a penalty equal to $50 per employee per incident of failure, up to a total amount of $2,500 per calendar year.
HIPAA. Although unclear, a QSEHRA probably will be considered a covered entity (a health plan) and therefore be subject to HIPAA privacy and security rules. However, if less than 50 employees participate in the QSEHRA, and the QSEHRA is self-administered, then the QSEHRA is not subject to HIPAA rules.
COBRA. QSEHRAs are not subject to federal COBRA continuation coverage requirements.6
Coordination with premium tax credit/marketplace subsidy. Amounts paid or reimbursed under the QSEHRA for any coverage month will reduce the amount of premium tax credit/marketplace subsidy available to an eligible employee by 1/12 of the employee's permitted benefit available to be reimbursed under the QSEHRA for that month. If the QSEHRA provides affordable coverage7, employees will not be eligible for a marketplace subsidy.
Taxability of QSEHRA payments. As discussed above, an employee must have minimum essential coverage8 for the month in which the medical care is provided in order for the payment or reimbursement from QSEHRA for medical care expenses described in section 213(d) of the Code to be tax-free to the employee.
W-2 Reporting. The employer must report the total amount of permitted benefit for the year under the QSEHRA on employees' Forms W-2.
Transitional Relief Extended. The Act also extended transitional relief provided under Treasury Notice 2015-17 to employer payment plans for plan years beginning on or before December 31, 2016. This means that the excise tax under Code section 4980D will not be imposed for any failure to satisfy market reforms by employer payment plans of small employers (i.e., those that are not applicable large employers) that pay, or reimburse employees for, individual health policy premiums or Medicare Part B or Part D premiums.9 Such employers are not required to file IRS Form 8928 solely as a result of having such an arrangement for your plan years beginning on or before December 31, 2016. Please not that this relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums.10
This summary is provided as an informational tool. It is not intended to be and should not be considered legal advice, and receipt of this information does not establish an attorney-client relationship. For legal advice, please contact one of our attorneys.
Reprinted with Permission from Conner & Winters, LLP. www.cwlaw.com
Notice: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It has been provided to member schools with the understanding that ACSI is not engaged in rendering legal, accounting, tax, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Laws vary by jurisdiction, and the specific application of laws to particular facts requires the advice of an attorney.
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