Thursday, November 9, 2017

Employers May Once Again Reimburse Employees for Their Private Health Care Plan Insurance Premiums

William Delaney, EA
Westwood, MA
This was a big deal in the days before passage of the Affordable Care Act.  The small employer did not need to have/offer a group health plan.  An employee could have his/her own plan and be reimbursed for the premiums.  However, the ACA put a stop to this tax planning, but now comes the 21st Century Cures Act, a giant compendium of all sorts of so-called great things for big pharma and others, which also just happens to include something nice for small employers and their employees.  President Obama signed it into law on Dec. 13, 2016.  I had intended to summarize this new Act, but when I saw that the House Committee explanation runs to 966 pages, your Editor quickly lost his enthusiasm!

What we need to know is that this stuff is buried within the act, and it is good stuff…

The Act allows a small employer to avoid ACA penalties associated with a reimbursement scheme by establishing a “qualified small employer health reimbursement arrangement.”   We now must learn a new acronym – QSEHRA!


Employer with fewer than 50 employees.
Must be offered to ALL “eligible” employees (see below).
Must be funded solely by employer contributions.
Must be offered on the same terms to each employee, BUT employee reimbursements may vary depending on variations in policy costs due to age rating or family size.

Who may be excluded from the definition of “eligible employee?”

Those with fewer than 90 days of service.
Those under the age of 25.
Part-time and seasonal employees (no regulatory guidance available)
Union employees unless collective bargaining agreement makes them eligible.
Non-resident aliens with no U.S. source income.

So, this is an Health Savings Plan, which allows employees to draw on the set-aside funds to reimburse health insurance premiums and out-of-pocket medical expenses.
It avoids the Sec. 4980H penalty (which has yet to be imposed, absent regulations).
The expenses must qualify under Sec. 213(d) and must be sufficiently documented.  Maximum amount of reimbursement per employee is $4,950; $10,000 for family coverage.  The reimbursement is not taxable unless the employee lacks “minimum essential coverage” under ACA.  Lack of such coverage means that the QSEHRA benefit is taxable income.  Also, these reimbursements work against the health insurance marketplace subsidy calculation.

Finally, while this plan is subject to certain ERISA provisions, it is NOT a group plan covered under COBRA.

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