QSEHRA

Can I use Medi-Share, sharing ministries with a QSEHRA?

by Jack

It's a question we get a lot from users of our QSEHRA service. The official answer: "Ask your accountant."

However, while we can't give tax advice, what we can do is help you look at the law and provide the information necessary for you to have a productive conversation with your CPA or lawyer.

October 2018 Update: The IRS has still not provided clear guidance on how sharing ministries work with QSEHRA. However, we now suggest sharing ministries be reimbursed outside of QSEHRA or be combined with an individual MEC plan. For more information, please see the Premiums Section of our QSEHRA Reimbursement Guide. For Take Command Health clients, we've updated how we handle sharing ministries on our platform to separate them out from QSEHRA reimbursements. You can learn more about these changes in this help article.

Please Note: Take Command Health is NOT a licensed certified public accountant (CPA) or qualified to give tax advice. We share this information for educational purposes only.

QSEHRA Law (21st Century Cures Act)

Let's start with the law. The 21st Century Cures Act created the Qualified Small Entity Health Reimbursement Arrangement (QSEHRA) by modifying the Internal Revenue Code (IRC) and the Affordable Care Act (ACA) to add provisions for small employers.

Here's a copy of the 21st Century Cures Act with the language that pertains to QSEHRAs (there were a lot of other things in the bill too). Full bill.

Under the definition of the Arrangement (Subsection D.2.B), the law calls for "proof of coverage," as bolded below:

(B)Arrangement described
An arrangement is described in this subparagraph if—
(i)such arrangement is funded solely by an eligible employer and no salary reduction contributions may be made under such arrangement,
(ii)such arrangement provides, after the employee provides proof of coverage, for the payment of, or reimbursement of, an eligible employee for expenses for medical care (as defined in section 213(d)) incurred by the eligible employee or the eligible employee’s family members (as determined under the terms of the arrangement), and
 
(iii)the amount of payments and reimbursements described in clause (ii) for any year do not exceed $4,950 ($10,000 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee).

 

So, "proof of coverage" of what? Later in the law, when describing how a QSEHRA must be communicated to employees in order to maintain compliance, the law specifies information in section D.4.B that must be included in that notice and says "minimum essential coverage" (MEC).

(B)Contents of notice
The notice required under subparagraph (A) shall include each of the following:
(i) A statement of the amount which would be such eligible employee’s permitted benefit under the arrangement for the year.
(ii) A statement that the eligible employee should provide the information described in clause (i) to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit.
(iii) A statement that if the employee is not covered under minimum essential coverage for any month the employee may be subject to tax under section 5000A for such month and reimbursements under the arrangement may be includible in gross income.

Alright, so it looks like you need Minimum Essential Coverage or MEC, but what is that?

What is Minimum Essential Coverage for QSEHRA?

Thankfully, the law does make it clear that they're talking about MEC as it applied under section 5000A. This is the part of ACA that modified the tax code to require everyone to maintain health insurance coverage or face a penalty (AKA, the "individual mandate"). Section 5000A starts like this:

(a)Requirement to maintain minimum essential coverage

An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.

 

I'm highlighting two terms, "applicable individual" and "minimum essential coverage" for a reason you'll see shortly. Section 5000A goes on to describe how the tax penalties work and then provides a definition of minimum essential coverage in section F:

(f)Minimum essential coverage

For purposes of this section—

(1)In general
The term “minimum essential coverage” means any of the following:
(A)Government sponsored programs
Coverage under—
(i)the Medicare program under part A of title XVIII of the Social Security Act,
(ii)the Medicaid program under title XIX of the Social Security Act,
(iii)the CHIP program under title XXI of the Social Security Act,
(iv)medical coverage under chapter 55 of title 10, United States Code, including coverage under the TRICARE program; [2]
(v)a health care program under chapter 17 or 18 of title 38, United States Code, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of Health and Human Services and the Secretary,
(vi)a health plan under section 2504(e) of title 22, United States Code (relating to Peace Corps volunteers); 2 or
(vii)the Nonappropriated Fund Health Benefits Program of the Department of Defense, established under section 349 of the National Defense Authorization Act for Fiscal Year 1995 (Public Law 103–337; 10 U.S.C. 1587 note).
(B)Employer-sponsored plan
Coverage under an eligible employer-sponsored plan.
(C)Plans in the individual market
Coverage under a health plan offered in the individual market within a State.
(D)Grandfathered health plan
Coverage under a grandfathered health plan.
(E)Other coverage
Such other health benefits coverage, such as a State health benefits risk pool, as the Secretary of Health and Human Services, in coordination with the Secretary, recognizes for purposes of this subsection.
 
(2)Eligible employer-sponsored plan
The term “eligible employer-sponsored plan” means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is—
(A)
a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or
(B)
any other plan or coverage offered in the small or large group market within a State.
Such term shall include a grandfathered health plan described in paragraph (1)(D) offered in a group market.
 
(3)Excepted benefits not treated as minimum essential coverage
The term “minimum essential coverage” shall not include health insurance coverage which consists of coverage of excepted benefits—
(A)
described in paragraph (1) of subsection (c) of section 2791 of the Public Health Service Act; or
(B)
described in paragraph (2), (3), or (4) of such subsection if the benefits are provided under a separate policy, certificate, or contract of insurance.
 
(4)Individuals residing outside United States or residents of territories. Any applicable individual shall be treated as having minimum essential coverage for any month—
(A)
if such month occurs during any period described in subparagraph (A) or (B) of section 911(d)(1) which is applicable to the individual, or
(B)
if such individual is a bona fide resident of any possession of the United States (as determined under section 937(a)) for such month.
 
(5)Insurance-related terms
Any term used in this section which is also used in title I of the Patient Protection and Affordable Care Act shall have the same meaning as when used in such title.

Hmm...wait, where does it say anything about "sharing ministries"? I thought those were exempt from ACA individual mandate requirements?

They are, but they are exempt under the definition of "applicable individual" (going back to the start of Section 5000A). Under 5000A.D, an "applicable individual" is defined and members of healthcare sharing ministries are clearly excluded from being an "applicable individual" and therefore excluded from the individual mandate: 

(d)Applicable individual
For purposes of this section—
(1)In general
The term “applicable individual” means, with respect to any month, an individual other than an individual described in paragraph (2), (3), or (4).
(2)Religious exemptions
(A)Religious conscience exemption. Such term shall not include any individual for any month if such individual has in effect an exemption under section 1311(d)(4)(H) of the Patient Protection and Affordable Care Act which certifies that such individual is—
(i) a member of a recognized religious sect or division thereof which is described in section 1402(g)(1), and
(ii)an adherent of established tenets or teachings of such sect or division as described in such section.
(B)Health care sharing ministry
(i)In general
Such term shall not include any individual for any month if such individual is a member of a health care sharing ministry for the month.
(ii)Health care sharing ministry
The term “health care sharing ministry” means an organization—
(I) which is described in section 501(c)(3) and is exempt from taxation under section 501(a),
(II) members of which share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the State in which a member resides or is employed,
(III) members of which retain membership even after they develop a medical condition,
(IV) which (or a predecessor of which) has been in existence at all times since December 31, 1999, and medical expenses of its members have been shared continuously and without interruption since at least December 31, 1999, and
(V) which conducts an annual audit which is performed by an independent certified public accounting firm in accordance with generally accepted accounting principles and which is made available to the public upon request.
 

Design your QSEHRA

Conclusion: What should I do?

October 2018 Update: The IRS has still not provided clear guidance on how sharing ministries work with QSEHRA. However, we now suggest sharing ministries be reimbursed outside of QSEHRA or be combined with an individual MEC plan. For more information, please see the Premiums Section of our QSEHRA Reimbursement Guide. For Take Command Health clients, we've updated how we handle sharing ministries on our platform to separate them out from QSEHRA reimbursements. You can learn more about these changes in this help article.

We are not experts at tax law or understanding IRS language. However reading the law, it's clear that to receive tax-free benefits from a QSEHRA, that you must show "proof of coverage."

That coverage is later described as "minimum essential coverage" or MEC. Although it's unlikely you could make an argument that sharing ministries like Medi-Share and others are MEC, you could make an argument that as a member of a sharing ministry you are exempt from having to have MEC in the first place.

 
Does that exemption carry through to QSEHRA? 

We don't know! Hopefully the IRS will provide guidance or clear direction soon. In the meantime, please make sure you talk to your tax professional or accountant if you or your employees are interested in using a sharing ministry under a QSEHRA.

Currently, we allow business owners and administrators of Take Command Health's QSEHRA platform to decide how to handle Medi-Share and other sharing ministries. If the IRS provides additional guidance, we'll be sure to update it here and with our members. 

Hungry for more? Check out the FAQ section in our handy new QSEHRA Guide!

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About Take Command Health

Take Command Health launched three years ago with the goal of bringing awareness, advocacy, and transparency to the confusing world of health insurance for small businesses and individuals. Take Command Health is at the forefront of this issue, a recognized leader in QSEHRA administrationand small business tax strategy, with customers in every state. It operates in Arizona, California, Florida, Georgia, Indiana, Michigan, North Carolina, Pennsylvania, Texas, Tennessee, and Wisconsin for individual insurance and offers small business HRA administration nationwide.

Again, we are NOT TAX EXPERTS. Please do not use this post as advice or information. There may be other sections of the law that apply you should discuss with your CPA.

Medishare and QSEHRA

Picture of Jack

Hi, I'm Jack! I wrote this blog to help people make smart health insurance decisions. I am a small business owner, a husband, and a dad to three boys, so I've seen firsthand how important understanding insurance decisions can be. As a co-founder of Take Command Health and a licensed health professional, I've been recognized as a leading expert on healthcare transparency and defined contribution arrangements (QSEHRA). I've been featured in the New York Times, Wall Street Journal, Dallas Morning News, Forbes and others. Learn more about me and connect with me on our about us page. Thanks!