Quick tips for new health reimbursement arrangements
March 6, 2017
By Lori Stewart, SPHR®, SHRM-SCP, HCS, Partner, Human Resources Consulting
Effective January 1, 2017, new legislation has made it possible and compliant for small employers to reimburse employees for their individually-purchased individual and/or family health policies. This new legislation, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), can be very effective and efficient for the right employer/employee mix. Regulated by the IRS, there are specific rules around administering this plan. Additionally, employers need to carefully weigh whether the QSEHRA or small group plan would provide a greater benefit their employees. Below you fill find some of the most common Q&As.
Q: As a small employer, may I offer a group health plan AND a qualified small employer health reimbursement arrangement (QSEHRA) to my employees, allowing them to choose which they prefer?
A: No. The new regulations specifically prohibit this practice. As a small employer, you may choose one approach or the other, but not both.
Q: As the employer, I would like to reimburse up to $300/month. However, my employees’ monthly premiums are all more than that. May I deduct the remainder of the premium due from their paychecks on a pretax basis?
A: No. As the employer, you may choose the amount you want to reimburse (see next questions). The remainder of the premium due is the employee’s responsibility to pay on a post-tax basis.
Q: Can the employees fund the remainder of the premium (remaining premium which is not reimbursed by the employer) through funds from a Flexible Spending Account (FSA) or Health Savings Account (HSA) account?
A: No, the employee must pay the remainder of any premium due on a post-tax basis and may not use either an FSA or an HSA to pay the remainder of the premium due.
Q: How do I decide how much to reimburse my employees?
A: You may reimburse up to $4,950/year for single coverage and up to $10,000/year for family coverage. You must apply the same employer-contribution protocol to all similarly situated employees.
Q: Are there limitations around what kind of health insurance policy my employees purchase?
A: Yes. To be eligible for employer reimbursement through the QSEHRA regulations, the employee must purchase an ACA-compliant policy. An example of policies not ACA-compliant would be short-term medical plans, which individuals can purchase for 3, 6 or 11 month terms. In the small print, these policies and their applications are required to mention they are not ACA-compliant, so advise your employees to read the small print. There are many types of policies that are ACA-compliant. Each employee is allowed to shop around to choose the policy that best meets their needs, and employees of the same employer can have different policies from different insurance companies.
Q: Can I start this reimbursement approach at any time?
A: Yes, as long as you follow the rules and offer the plan to all similarly situated employees (e.g. all full-time employees). An official notice of the QSEHRA parameters customized for your organization should be given to all eligible employees. Although the regulations specify the official notice and description of the plan be given 90 days prior to the effective date, recent guidance has provided leniency on this point due to the timing of the legislation that was passed. Contact your HK/HKP representative to discuss how your official notice and description of the plan should look (HK/HKP can create these for you) and advice on the timing of the implementation at your organization.