Recent federal legislation makes it permissible for small
employers to reimburse employees for individual health insurance premiums by
setting up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
Prior to passage of this legislation, the Affordable Care Act subjected employers
to substantial penalties if they engaged in this practice.
Employers with fewer than 50 full-time employees may now
make non-taxable payments to employees for plan years beginning after December
31, 2016. While these employer payments are not taxable to qualified employees,
the employer must report the value of the payments on the employee’s W-2.
Small employers who offer the QSEHRA must offer it to all
full-time employees and cannot offer a group health plan to any of its
employees. The employer must collect proof of an employee’s payment for a
qualified individual health plan and must provide annual written notices to all
eligible employees. In some cases the employer offer of coverage may make
employees ineligible for federal subsidies on the exchange. An employer
offering a QSEHRA will want to contract with a reliable third-party
administrator to assist with plan documents and compliance.
For 2017 it is expected that QSEHRA’s will be most
attractive to employers who do not presently offer a group health plan to their
employees. The dire state of the individual insurance market with regard to
escalating premiums, decreasing carrier choice, rising cost of care and
diminishing provider networks makes transitioning from the group market to the
individual market very challenging. Additional changes in Washington and at the
state level could breathe new life into the individual market for 2018 and
beyond thereby broadening the adoption of the QSEHRA.
Contact your Business Benefits advisor for a complete
discussion of QSEHRA guidelines.