Health Coverage Made Easier for Small Employers

Small employers have often struggled to provide a healthcare benefit for their employees. The administrative burden and expense of establishing a group health plan drove many to simply reimburse employees who purchased coverage on their own.

However, the Affordable Care Act eliminated this practice, forcing small business owners to adopt one of the following options instead:

• Establish a group health plan and hire a third-party administrator to implement it (or assume that burden internally).
• Provide reimbursement for employees’ individual plan expenses using after-tax dollars and report the reimbursement as income to employees.
• Forego health coverage as an employee benefit and diminish their capacity to attract and retain reliable, talented and hard-working personnel.

In December 2016, President Obama joined Congress in rectifying this circumstance by signing the 21^st Century Cure Act into law. This legislation provides the means for small companies to reinstate pre-tax healthcare reimbursement via a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

In order to take advantage of this healthcare reimbursement:

1. Business owners can have no more than 50 full-time equivalent employees on their payrolls.
2. The business may not support a group insurance plan concurrent with its QSEHRA. It’s one or the other.
3. The business must create an official plan document for its QSEHRA that conforms to the provisions of the law. Employee benefits consultants prepare these materials or provide referrals to third-party vendors.
4. The plan must provide the same benefit for all eligible employees. Management cannot receive higher benefits than the rank-and-file workers.
5. Employers must provide notice to all eligible employees about the plan details and available coverage at least 90 days before the plan commences.
6. Employees must purchase health plans that have “minimum essential coverage” as defined by the Affordable Care Act. They must also provide proof of coverage before receiving their employee benefit.
7. Employers must report the amounts paid as benefits on employee W-2s. The maximum pre-tax annual benefit is $4,950 for an individual and $10,000 for a family.

Employers are not required to offer health insurance reimbursement to all employees under their QSEHRA. They may exclude seasonal workers; part-time workers; workers covered by collective bargaining agreements for which accident and health benefits were subject to good faith negotiations; employees with less than 90 days service; employees under age 25; and certain non-resident aliens.

A QSEHRA provides a number of advantages for small employers. It saves them the time, trouble and expense of establishing a group insurance plan that will satisfy the needs of its employees. Rather, the company stays out of employee health care decision making and simply provides reimbursement for some or all of the coverage that employees and their families elect to procure. This arrangement also enables employees to use their preferred provider networks rather than switch to a network dictated by a group plan. And, of course, the company minimizes its benefits administration expense.

Once you’ve created your QSEHRA, you’ll need to establish the appropriate internal procedures to provide employee notification, secure proof of coverage from employees, and make the appropriate adjustments to payroll. You should audit employee health care arrangements periodically to ensure their coverage remains intact. Amounts paid in excess of employee-paid premiums must be reported as income.

If you are weighing your options, talk with a knowledgeable benefits consultant to determine whether a small business group insurance plan or QSEHRA best suits your circumstances. A benefits consultant can help you design your plan and put the appropriate documentation in place.