On Decem­ber 13, 2016, Pres­i­dent Oba­ma signed the 21st Cen­tu­ry Cures Act (Cures Act) into law. The Cures Act pro­vides a method for cer­tain small employ­ers to reim­burse indi­vid­ual health cov­er­age pre­mi­ums up to a dol­lar lim­it through HRAs called “Qual­i­fied Small Employ­er Health Reim­burse­ment Arrange­ments” (QSE HRAs). The pro­vi­sion went into effect on Jan­u­ary 1, 2017. On Octo­ber 31, 2017, the IRS released Notice 2017–67, pro­vid­ing guid­ance on the imple­men­ta­tion and admin­is­tra­tion of QSE HRAs.

Unless an employ­er meets all the require­ments for offer­ing a QSE HRA, pre­vi­ous IRS guid­ance pro­hibit­ing the reim­burse­ment of indi­vid­ual pre­mi­ums direct­ly or indi­rect­ly, after- or pre-tax, through an HRA, a Sec­tion 125 plan, a Sec­tion 105 plan, or any oth­er mech­a­nism, remains in full effect. Reim­burs­ing indi­vid­ual pre­mi­ums in a non-com­pli­ant man­ner will sub­ject an employ­er to a Patient Pro­tec­tion and Afford­able Care Act (ACA) penal­ty of $100 a day per indi­vid­ual it reim­burs­es, with the poten­tial for oth­er penal­ties based on the mech­a­nism of the non-com­pli­ant reimbursement.

If an employ­er fails to meet the require­ments of pro­vid­ing a QSE HRA, it will be sub­ject to a penal­ty of $100 per day per affect­ed per­son for being a non-com­pli­ant group health plan. An arrange­ment will be a group health plan that is not a QSE HRA if it:

  • Is not pro­vid­ed by an eli­gi­ble employ­er (such as an employ­er that offers anoth­er group health plan to its employees).
  • Is not pro­vid­ed on the same terms to all eli­gi­ble employees.
  • Reim­burs­es med­ical expens­es with­out first requir­ing proof of min­i­mum essen­tial cov­er­age (MEC).
  • Pro­vides a per­mit­ted ben­e­fit in excess of the statu­to­ry dol­lar limits.

An arrange­men­t’s fail­ure to be a QSE HRA will not cause any reim­burse­ment of a prop­er­ly sub­stan­ti­at­ed med­ical expense that is oth­er­wise exclud­able from income to be includ­ed in the employ­ee’s income or wages. Fur­ther­more, an arrange­ment designed to reim­burse expens­es oth­er than med­ical expens­es (whether or not also reim­burs­ing med­ical expens­es) is nei­ther a QSE HRA nor a group health plan. Accord­ing­ly, all pay­ments under such an arrange­ment are includi­ble in the employ­ee’s gross income and wages. An employ­er’s fail­ure to time­ly pro­vide a com­pli­ant writ­ten notice does not cause an arrange­ment to fail to be a QSE HRA, but instead results in the penal­ty of $50 per employ­ee, not to exceed $2,500.

Answers to Top Three FAQs about QSE HRAs 

1, Which employ­ers may offer a QSE HRA?

Employ­ers with few­er than 50 full-time and full-time equiv­a­lent employ­ees (under ACA count­ing rules) that do not offer a group health plan. Employ­ers that do not offer a group health plan, but offer a retiree-only plan to for­mer employ­ees may offer a QSE HRA.

2. Which employ­ers may not offer a QSE HRA?

  • Employ­ers with 50 or more full-time and full-time equiv­a­lent employ­ees (under ACA count­ing rules).
  • Employ­ers of any size that offer a group health plan, includ­ing plans that only pro­vide except­ed ben­e­fits, such as vision or den­tal benefits.
  • Employ­ers that pro­vide cur­rent employ­ees with access to mon­ey from health reim­burse­ment arrange­ments (HRAs) offered in pri­or years (through a carry-over).
  • Employ­ers that offer employ­ees access to car­ry­over amounts in a flex­i­ble spend­ing account (FSA).

3. What are the rules for employ­ers in a con­trolled group?

  • Employ­ers with less than 50 full-time and full-time equiv­a­lent employ­ees (under ACA count­ing rules) may offer QSE HRAs, with the head­count includ­ing all employ­ees across an entire con­trolled group.
  • If one employ­er with­in a con­trolled group offers a QSE HRA, it must be offered to all employ­ees with­in the entire con­trolled group (or each employ­er must offer an iden­ti­cal QSE HRA).

By Danielle Capilla

Orig­i­nal­ly post­ed by www.UBABenefits.com