On Tuesday, December 13th, 2016, the President signed into law the - "21st Century Cures Act" - which includes a provision that will be very good news to many stakeholders, in particular, employers that have fewer than 50 full time/full-time equivalent employees. Now law, the Act addresses a variety of issues including expanded treatment for mental health; resources to fight the so called "opioid epidemic"; hastening the time required for FDA approval of new drugs/devices; and additional funding to accelerate cancer research. Over $6 billion has been earmarked to fund the ambitious law, which received bi-partisan support in both the House and Senate.
Back in 2002, the IRS created Health Reimbursement Arrangements (HRA's), essentially building off a more popular and widely utilized tax preferred instrument known as a flexible spending account or FSA. HRAs offer plan participants flexibility that FSAs did not, most notably the ability to carry over unused dollar allocations to subsequent benefit years. The "21st Century Cures Act" has once again performed an "Adam and Eve like" creation by building off the HRA to create a new tax preferred spending arrangement called a Qualified Small Employer Health Reimbursement Arrangement, or QSE HRA. Here's how the QSE HRA works, and more importantly, who is eligible to implement/offer the new tax preferred spending arrangement.
WHO CAN OFFER
- Employers that do not meet the Affordable Care Act's (ACA) definition of an "applicable large employer", generally under 50 full-time and full-time equivalent employees (FTEs). (Note: employers who averaged less than 50 FTE's in 2016 or the entire prior calendar year would meet this test); and
- Eligible employers that do not currently offer group health insurance coverage to their employees. Employers that offer coverage to a certain class or segment of their employed population would not meet this test, unless they terminated all inforce group health plans.
WHAT CAN BE REIMBURSED
QSE HRAs are established to reimburse eligible employees' medical expenses including:
- Premiums for individual health insurance coverage.
- Premiums for Medicare supplement or Medigap insurance
- Expenses heretofore allowed to be reimbursed under FSAs and Health Savings Accounts (HSAs), listed in IRS code section 213(d). Examples include health insurance plan related copays, deductibles, and coinsurance, and expenses related to services such as acupuncture, chiropractic care, dentures, corrective vision, etc.
- The maximum allowable QSE HRA amounts, which must be 100% employer funded, are $4,960 for individual only coverage; and $10,000 for individual plus dependent(s) coverage. Amounts can be prorated by employers based on employee hire dates. Presumably the amounts would increase from year to year, similar to the increases announced by the IRS for annual HSA contribution limits.
There are a variety of compliance related considerations employers need to be aware of and address upon plan implementation, including:
- Development of a plan document which outlines the parameters of the QSE HRA plan (Note: HRAs and QSE HRAs are ERISA governed plans, and must follow the same rules as a health insurance plan.)
- Development/distribution of a summary plan description (SPD)
- Distribution of the required "90 day" notice
- Determining affordability relative to the ACA's individual mandate
- Reporting QSE HRA amounts on employees' form W-2
- Completion/Submission of the ACA's 1095-B data to plan participants and the IRS, along with transmission of 1094-B data to the IRS.