Tag Archives: medical

New Flexibility For Health Reimbursement Plans

In an effort to reverse another aspect of the Affordable Care Act (“ACA”), the Trump Administration published a proposed rule in late October that would allow employers to reimburse employees for medical expenses through a stand-alone health reimbursement account (“HRA”).  Health care reform imposes a large excise tax on arrangements that reimburse employees for health care expenses without also providing a group health plan to employees.  The penalty was intended to drive employers to purchase group insurance plans for their employees but posed a huge challenge for small employers who saw such reimbursements as a natural alternative to offering employee health care coverage.  In the wake of rising health care costs, the Internal Revenue Service (“IRS”) recognized the burden such prohibition posed on small employers.  As a result, in 2017, the IRS chipped away at the prohibition by allowing employers with less than 50 full-time employees to offer special stand-alone HRAs, known as “Qualified Small Employer Health Reimbursement Accounts” or “QSEHRAs.”  The government now takes one step further by proposing to allow both small and mid-size employers to offer HRAs to their employees, even if they do not offer traditional group coverage.  The Proposed Rule intends to accomplish two major goals: (1) permit HRAs to be integrated with individual health insurance coverage; and (2) expand the definition of benefits in order to allow reimbursement for stand-alone dental, limited scope vision, and other plans.

i.                     The Proposed Integration Rules

HRAs are tax-free, employer-funded accounts used to pay for out-of-pocket, qualified medical expenses.  HRAs have been part of the health care market for years, but the ACA tried to discourage the use of HRAs to prevent employers from pushing employees with health risks into the individual market.  Currently, employers can only offer an HRA to their employees if it is “integrated” with a major group medical plan sponsored by the employer.  Under the new Proposed Rule, employers would be able to offer HRAs to employees with individual health insurance coverage if certain conditions are met.  For example, under the Proposed Rule, an employer cannot offer a stand-alone HRA and a traditional group health plan to the same group or class of employees.  Additionally, while HRA reimbursement amounts can vary to reflect age-based health coverage pricing, reimbursement amounts cannot vary based on the health-risk posed by the employee.  In other words, the general rule requires that the HRA integrated with individual health insurance coverage be offered on the same terms to all employees of the same class (e.g., full-time, part-time, seasonal, etc.).

ii.                   Limited Excepted Benefits under the Proposed Rule

The Proposed Rule also offers employers the opportunity to offer an HRA to its employees, even if its employees do not have any major medical coverage at all.  Under the Proposed Rule, an HRA will be considered a “limited excepted benefit” exempt from the integration rules if: (1) the HRA is not an integral part of the plan; (2) the HRA does not provide reimbursements in excess of $1,800 per year; (3) the HRA does not reimburse premiums for certain health insurance coverage; and (4) the HRA is made available under the same terms to all similarly situated individuals.  The HRA is not an “integral part of the plan” if the participant is offered the opportunity to enroll in an employer-sponsored group health plan.  Additionally, the HRA cannot reimburse the participant for premiums for individual health insurance coverage, coverage under a group health plan, or Medicare parts B or D.  Rather, the HRA could reimburse employees for premiums for dental plans, limited scope vision plans, or other “excepted benefits.”

iii.                  The Proposed Rule and QSEHRAs

HRAs under the Proposed Rule are different from QSEHRAs.  QSEHRAs have specific, stringent requirements and only apply to employers with less than 50 full-time employees.  However, QSEHRAs have a higher statutory dollar limit on reimbursements.  While an employer-sponsored QSEHRA can reimburse employees up to $5,050 for individuals and $10,250 for families, a stand-alone HRA under the new Proposed Rule can only reimburse employees for up to $1,800 worth of medical expenses.  In other words, some small employers hoping to reimburse employees up to the highest dollar amount available might find that QSEHRAs are a more attractive option.  Another difference between QSEHRAs and the stand-alone HRAs under the Proposed Rule is the ACA consequences applicable to employers.  Under the Proposed Rule, if group health plan coverage is unaffordable for an employee enrolled in the stand-alone HRA, the employer will be subject to ACA penalties if the employee opts out of coverage and qualifies for a premium tax credit subsidy.  In contrast, QSEHRAs do not impose penalties on employers if the reimbursements do not make health coverage “affordable,” because small employers eligible to establish QSEHRAs are not subject to the pay-or-play mandate.

If you have any questions about the HRAs, QSEHRAs, or the new Proposed Rule, please contact one of our employee benefits attorneys.

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QSEHRAs Serve As Option For Small Employers Amidst Rising Premium Costs

As 2017 comes to a close, many small employers are struggling to find affordable group health plans on the insurance market. Given the substantial impact increased premiums have on individuals and small employers, many small employers have sought out alternative mechanisms for providing health insurance to their employees.  Qualified Small Employer Health Reimbursement Arrangements (“QSEHRAs”) might be their best option for providing tax-free reimbursements of medical expenses.

Under the Affordable Care Act’s (“ACA’s”) Market Reform rules, stand-alone Health Reimbursement Arrangements (“HRAs”) and employer payment plans used to reimburse employees for medical care expenses violate the ACA and are subject to Internal Revenue Code Section 4980D excise tax. The IRS quickly became aware of the negative impact this rule had on small employers and decided to create QSEHRAs, which became available to qualified small employers on January 1, 2017.  QSEHRAs, unlike HRAs, are not subject to health care reform requirements for group health plans.  At first, many areas of uncertainty surrounded the formation and implementation of QSEHRAs.  However, the IRS released Notice 2017-67 in mid-October, which contains detailed guidance on the requirements for providing a QSEHRA to employees.

A QSEHRA must meet the following four basic requirements: (1) the QSEHRA must be funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement; (2) after an eligible employee provides proof of coverage, the QSEHRA must provide for the payment or reimbursement of medical expenses incurred by the employee or the employee’s family members; (3) the amount of payments and reimbursements for any year cannot exceed the statutory limits ($4,950 for self-only coverage and $10,050 for family coverage in 2017; $5,050 for self-only coverage and $10,250 for family coverage in 2018); and (4) the QSEHRA must generally be provided on the same terms to all eligible employees of the employer.

In order to qualify for a QSEHRA as a small employer, a company cannot be an Applicable Large Employer under the ACA (i.e., must have less than 50 full-time equivalent employees in the prior calendar year) and cannot offer a group health plan to any of its employees. If an employer’s workforce increases to 50 or more full-time equivalent employees during a calendar year, that employer will become an Applicable Large Employer before the first day of the following calendar year.  Offering a group health plan to former employees or retirees will not disqualify the employer.  However, if an employer endorses a particular policy, form, or issuer of health insurance, it will constitute a group health plan and disqualify the employer.

Any eligible employee or family member can participate in the QSEHRA. Reimbursements for medical care are tax-free to the employee if the employee has minimum essential coverage (MEC) for the month in which the medical care is provided.  Medical care, as defined in Internal Revenue Code Section 213(d), includes health insurance premiums, but excludes out-of-pocket expenses already reimbursed from another source and premiums paid by the employee on a pre-tax basis, for coverage under a group health plan of another employer.  However, the QSEHRA can reimburse an employee for premiums paid after-tax under a group health plan provided by a spouse’s employer.  An initial submission of proof of MEC must be provided to the employer, in addition to proof of MEC with each new request for reimbursement for the same plan year.  An attestation by an employee will constitute proof of coverage if it states that the employee and family members have MEC, provides the date coverage began, and includes the name of the provider.

A QSEHRA must be provided on the same terms to all eligible employees on a “uniform and consistent basis,” but may exclude the following employees: (1) employees that have not completed 90 days of service; (2) employees that are under age 25; (3) part-time or seasonal employees; (4) employees covered by a collective bargaining agreement if health benefits were the subject of good faith bargaining; and (5) nonresident aliens with no earned income from the employer or sources within the U.S. Former employees, retirees, and non-employee owners must be excluded from the QSEHRA.  Furthermore, a 2% shareholder-employee of an S corporation does not constitute an employee for purposes of QSEHRAs.

IRS Notice 2017-67 provides many detailed rules on eligibility, nondiscrimination notice and reporting requirements, integration with other laws, and more. Complying with these rules is considerably important since failure to comply with the QSERHA requirements will result in a noncompliant group health plan and trigger ACA penalties.  If you are a small employer and are interested in setting up a QSEHRA, please contact one of our employee benefits attorneys for more information on the legal requirements and implementation process.

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