On December 13, the president signed a new law permitting small employers to reimburse medical expenses tax-free without offering group health coverage. This is potentially a huge win for many businesses and their employees but comes with some restrictions.
Employers that did not offer health insurance had been prohibited from reimbursing employees for their health expenses and insurance premiums. These reimbursement arrangements were considered non-compliant group health plans under the Affordable Care Act and were subject to excise taxes of $100 per person per day.
Under the new law, starting January 1, 2017, small employers that do not offer health benefits can provide reimbursement through a Qualified Small Employer HRA (QSEHRA), without being subject to the excise tax. To qualify, the following requirements must be met:
- The employer is not an Applicable Large Employer required to offer coverage to full-time employees under ACA.
- The employer does not currently offer health care coverage to any employees.
- The HRA is funded by the employer only, with no employee contributions.
- The HRA reimburses eligible medical expenses (including individual market premiums) for the employee and dependents.
- The maximum employer contribution is $4,950 and $10,000 for individual and family coverages, respectively.
The law also grants retroactive transition relief to small employers who have previously reimbursed employees' medical expenses.
In addition to the requirements above, a business deciding to implement a QSEHRA must do the following:
- Provide no later than 90 days before the beginning of the year a written notice to each eligible employee which includes:
- A statement of the amount of the employee's permitted benefit under the arrangement for the year;
- A statement that the eligible employee should provide the plan information to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit;
- A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to tax under the ACA individual mandate for such month, and reimbursements under the arrangement may be includible in gross income.
- Provide coverage under a QSERA on the same terms to all eligible employees.
- Benefit variations based on insurance policy pricing differences due to age or coverage tiers are allowed.
- Employers can exclude those who have not completed 90 days of service, reached age 25, or are part-time/seasonal employees from eligible employees.
- Require proof of coverage from employee before reimbursing expenses.
