Small businesses can reimburse for health premiums again
Until recently, organizations couldn't reimburse employees for healthcare premiums for plans purchased outside of the company group plan. If they did, there was a stiff financial penalty. But thanks to new legislation passed in late 2016, within the 21st Century Cures Act, companies with fewer than 50 workers can once again offer health reimbursement arrangements (HRAs) to employees.
These accounts, called qualified small employer health reimbursement arrangements, or QSEHRAs, help cover the cost of medical expenses, including health insurance premiums on the individual market.1
QSEHRA s help level the playing field for small businesses
While the future of healthcare — and the Affordable Care Act — is uncertain, a QSEHRA offers another way for small employers to help provide affordable health benefits to workers, leveling the benefits playing field.
When it comes to these accounts, there are some fairly strict rules that must be followed. Here are six things to keep in mind.
Employers must meet two criteria. To offer a QSEHRA, a business must (1) have fewer than 50 full-time equivalent workers and (2) not provide group health insurance. A full-time worker is someone who works 130 hours per month or 30 or more hours per week for 120 consecutive days.
Employers can reimburse workers for health, dental and vision. Reimbursement includes health insurance, as well as dental or vision premiums and other eligible healthcare expenses, such as those defined by the IRS.2
Reimbursements are limited to up to $4,950 for single coverage and $10,000 for family coverage, and they are tax-free to employees as long as the employee's health insurance qualifies as "minimum essential coverage.”3 It’s important to note, if an employee starts mid-year, those maximum amounts must be pro-rated.
Employers can't pick and choose who to cover. If a business decides to offer QSEHRAs, it must make them available to all full-time workers who have been with the firm for at least 90 days, who are 25 or older, and who aren't covered by another benefit agreement. However employers can elect to include part-time and seasonal employees, but aren't required to do so.
Employers must offer equivalent contributions. Small business owners can't cover 40 percent of one worker's premiums and 60 percent of another's. They must cover the same percentage of premiums for all workers, or offer reimbursement up to a maximum amount for each employee. Since the cost of workers' plans may differ based on their ages and other factors, what you reimburse could vary by employee, but the terms should be uniform.
Employers must notify employees in a timely manner. If a business is going to provide a QSEHRA, it must let employees know at least 90 days in advance of the beginning of the plan year.
Employers cover all costs and contributions. These accounts are meant to be a way to help employees cover their medical costs, and they're funded exclusively by the employer. Workers also shouldn't be responsible for the fees incurred in the administration and management of these accounts.4
While QSEHRAs can help smaller companies offer benefits that attract top talent, because of the newness of the legislation and the plans themselves, setup is still something of a work in progress. There are also rules that must be followed regarding reporting and notices to employees. Employers interested in offering these plans should consult their legal and tax professionals for guidance, and may want to look for a third party administrator to set up and manage these plans.
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