Offering health insurance as a small business used to be financially difficult, if not impossible for some. The good news is that when the 21st Century Cures Act was signed into law in 2016, it made reimbursing for premiums and medical expenses tax-free a reality for small businesses. So what's the catch? There isn't one, but there are a few requirements you need to know about.
Before you get started, there are a few rules to consider, like financial requirements, privacy requirements and eligibility requirements. This might seem like an overwhelming amount of information up front, but with the right QSEHRA administrator, set up can be simple. Here's what to know about the QSEHRA requirements!
The employer contributes 100% of the funds that go to the HRA - absolutely no funds are pulled from the employee’s salary. Because these are pre-tax contributions, they are not subject to income or employment taxes. These funds are used to reimburse the employee for individual health insurance premiums and other qualified medical expenses. (QSEHRA plans cannot reimburse staff for premiums paid on group insurance plans provided by spouses companies.) Employers can contribute no more than $5,050 annually for an individual employee or $10,250 annually if expenses are used for families. You must provide the same option to every single eligible employee.
Is your company eligible? Any company with fewer than 50 employees is eligible for a QSEHRA. However, this HRA is only possible if the small business doesn’t offer a group health plan.
Which employees are eligible? The majority of W-2 full-time employees of a small business choosing to participate in a QSEHRA are eligible. Any full-time staff, which the program defines as working at least 30 hours a week for at least 120 consecutive days, is eligible. If necessary, the following individuals may be excluded from your QSEHRA plan:
- Employees who have not completed 90 days of service
- Employees under age 25
- Part-time and seasonal employees
- Union employees (unless the union agreement provides for eligibility)
- Non-resident aliens without income from sources within the United States
Through your QSEHRA plan, most medical, dental, and vision expenses are eligible for reimbursement. These expenses include monthly premiums, copays, deductibles, prescriptions, and a variety of other healthcare needs. Whether the employee is requesting reimbursement, whether it be for themselves, their spouse, or their dependents, they must have been covered by health insurance at the time they incurred the expense and they must provide proof (like a receipt).
To verify expenses being submitted, you’ll be handling some sensitive documentation regarding your staff’s protected health information (PHI.) Because you’re an employer of a small company with less than 50 employees, your QSEHRA plan doesn’t fall within many of the federal laws that affect health plans built for larger corporations. One of those federal laws is HIPAA (the Health Insurance Portability and Accountability Act of 1996), which applies only to health plans that cover more than 50 employees. That being said, portions of HIPAA still apply to QSEHRAs.
All health plans, QSEHRA included, must observe the HIPAA Privacy Rule. This rule is specifically designed to protect patient’s PHI. It also controls what medical information the health insurance can and cannot share with the company sponsoring the plan. For the QSEHRA, this information will usually be presented to the employer to verify that the employee did have a qualifying medical expense. The documentation could include physician’s notes, an explanation of benefits, authorizations or referrals, claim status, or any verification of health care payments.
Because of this, you must guarantee that all staff’s PHI will never be used to make any work-related decisions and will always be fully protected. You will usually include this documentation in your QSEHRA contract documents. In these documents, you will also list any actions you plan to take to ensure your employee’s PHI is fully protected. The employer will then specify who will be HIPAA privacy officers within the business- usually, this role will fall on the plan administer.
Looking to dive deeper into the world of QSEHRA? Check out our first of its kind QSEHRA Guide or chat with one of our QSEHRA experts online! We are here to help.