Good healthcare option for small employers

By Zachary S. Kester, JD, LLM, CFRM and Laura Fucio, Charitable Allies

With all the coverage of the 2016 Presidential election and then proposed repeal of the Affordable Care Act (popularly known as “Obamacare”), many small employers may be unaware that last-minute legislation gave them the option to offer health reimbursement arrangements to their employees.

Such HRAs became outmoded by Obamacare. Now, this new QSEHRA option may turn out to be valuable for qualifying small employers hoping to attract talent by offering benefits packages as part of their compensation.

The Internal Revenue Service describes a Health Reimbursement Arrangement (HRA) as an arrangement funded solely by an employer to reimburse employees for medical care expenses for the employee or employee’s covered family members.

Under the Affordable Care Act, HRAs were considered to be group health plans, and thus subject to ERISA and minimum coverage requirements. The Department of Labor, in conjunction with the IRS, emphasized that employers could not offer an HRA as a way to help employees purchase individual market coverage in subsequent guidance.

The ruling’s result was that many small employers were unable to offer any form of health coverage for their employees. As of December, 71 percent of small employers were unable to offer insurance or any other form of coverage to employees, resulting in a loss of powerful recruiting and retention tools.

However, and also in December, the 114th Congress and then-President Obama enacted the 21st Century Cures Act, a bill primarily focused on funding pharmaceutical research and mental health. Much of the initial press coverage managed to miss a relatively short provision stuck at the very end of the bill. It reversed the earlier classification of HRAs as group health plans – but only for qualifying small employers. This type of arrangement is now known as a QSEHRA.

Now, for plan years starting in 2017, an employer can offer a QSEHRA to their employees if they have fewer than 50 full-time equivalent employees and do not offer any other form of a group health plan. While the plan must be offered on the same terms to all employees, it need not be offered to seasonal, part-time, or bargaining unit employees, and is neither subject to ERISA nor COBRA regulations. This makes a QSEHRA far less burdensome—in terms of both administration and expense—than a group health plan.

A QSEHRA does allow employers to reimburse employees for the costs they pay on the marketplace for private plans, as well as for other medical expenses (such as out-of-pocket costs) they may incur if covered by a group health plan from another employer, such as a spouse’s plan. The 2017 limits are at $4,950 for individuals and $10,000 for families, although an employer may choose to set the limit at a lower threshold. Depending on the employee’s circumstances and the amount of reimbursement offered, however, subsidy eligibility may be reduced but is not necessarily eliminated by an employer offering a QSEHRA, the way it would be with a group health plan.

Employer requirements

Employers can find the setup forms in packages for as low as $199. Employers who choose to offer a QSEHRA must track reimbursements paid out for W-2 reporting purposes, as well as issue a Form 1095 annually (and report the value of the plan to the IRS on Form 1094). Employers must also keep careful documentation on the expenses they reimburse, as well as maintain record-of-proof of minimum essential coverage for employees participating in the QSEHRA – all of which will be subject to HIPAA and other privacy laws. Employers must also offer a notice to all employees of the availability of the QSEHRA, which covers the amount available for reimbursement, reminds employees that they must obtain minimum essential coverage elsewhere and informs them of possible subsidy impact.

The future

Group health plans will likely continue to be unworkable for small employers. The Small Business Health Fairness Act, which allows small businesses to group together to form association health plans, recently passed the House but is forecasted to have a difficult time in the Senate. Even if it passes, association health plans will still be subject to ERISA regulation, which could render them undesirable to small employers due to the increased recordkeeping and administration requirements, as well as the rights ERISA grants to terminated employees.

With its much simpler requirements and lower costs, QSEHRAs are poised to be quite popular choices for small employers wishing to attract and keep high-quality employees in the years to come.

Attorney Zac Kester provides generalist and strategic nonprofit legal and consulting services. He holds a Master of Laws, a post-law school advanced degree, in which he studied the unique needs of tax-exempt nonprofit organizations. His legal and consulting career has focused on nonprofit organizations.

 

With highly experienced legal and training personnel, Charitable Allies provides all manner of legal and educational services for boards, officers, management and staff of myriad charities throughout the sector. From basic one-time questions about a single matter to training for boards and officers to complex reorganization or merger of activities, Charitable Allies is your go-to cost-effective provider of legal services to nonprofit organizations. Contact Zac Kester, executive director, at 317-333-6065 or zkester@charitableallies.org with any questions.