In December 2016, the 21st Century Cures Act created the qualified small employer health reimbursement arrangement (QSEHRA), a new HRA allowing eligible small employers to help their employees pay for individual major medical health insurance premiums.
While a QSEHRA may be an attractive way for small employers to assist their employees gain medical coverage, employers eligible to sponsor this type of program are subject to important limitations.
The Internal Revenue Service recently released guidance on what employers may sponsor QSEHRAs. To qualify, the employer cannot be an applicable large employer (ALE) and must not offer any other group health coverage.
The guidance provided the following clarification on these two items:
- ALE status: An employer must not qualify as an ALE as defined under the ACA. An ALE is an employer who has 50 or more full-time employees, including full-time equivalent employees, during the preceding year. This number includes the employees of all commonly controlled entities of the employer, including brother-sister or parent-subsidiary entities.
- No group health coverage: The employer must not offer a group health plan to its employees. This requirement applies to all companies that are commonly controlled – if one employer in a group offers its employees a group health plan, no other employer in the group is eligible to sponsor a QSEHRA. Disqualifying group health plans include major medical, health FSAs, dental and vision plans, and indemnity coverage.
Another requirement for QSEHRAs is that employees must provide adequate proof of coverage in order to be reimbursed. Generally, a billing invoice or EOC should be adequate, however, in addition to the eligibility requirements described above, the guidance also provided a model attestation form for employees to use in order to provide proof of coverage.
While QSEHRAs are not subject to COBRA, QSEHRAs don’t avoid all regulatory burdens applicable to standard HRAs. Most of these obligations will be under ERISA, such as reporting and disclosure requirements, as well as HIPAA privacy rules and discrimination testing requirements under the tax code.