By Thomas Fafinski
In mid-December, Obama signed a new law which unwinds the IRS position prohibiting employers from contributing to employee HRAs and creates a new type of HRA strategy!
Starting immediately, certain employers may provide employees with a Qualified Small Employer Health Reimbursement Account (“QSEHRA”) to their employees. In order to be a qualifying employer, you must employ fewer than 50 full-time employees. Additionally, the employer cannot have a co-existing group health insurance plan. The employer has to make a choice between the group plan and the QSEHRA, as the employer is not allowed to have a group health plan for any of its employees.
Generally speaking, the employer is not able to discriminate. That said, employers can exclude part-time employees, union employees, full-time employees who are seasonal and those under the age of 25. The employer is able to offer different benefit levels to employees who are single and also for family coverage. There is a cap on the amount of this benefit – $4950 for single coverage and $10,000 for family coverage, as well as an indexing inflator so that the benefit amounts do not remain stagnant.
Only the employer is able to contribute to this plan – no employee contributions allowed (which means no pre-tax funding for the employee). The employee is able to use the employer funds to pay for their health insurance premiums. The funds can also be used to pay for co-pays, deductibles, dental, vision and co-insurance related expenses. Employer must provide notice to employees on an annual basis and provide such notice at least 90 days before the plan year starts.
Additionally, there is no COBRA requirement for QSEHRAs and they are entirely exempt from other legal requirements generally applicable to group health insurance.
This change acts as a partial reversal of the IRS’s position in IRS Notice 2015-17 (as well as DOL Technical Release 2013-03) that contributions to an HRA are considered group health plans and, therefore, are entirely subject to the Affordable Care Act.