Monday, September 25, 2017

Reimbursements for Individual Health Premiums & the Myths of the 21st Century Cures Act

Background

Among my church clients, one of the most difficult changes from the Affordable Care Act (ACA) was the end of an employer's ability to reimburse employees for individual health insurance premiums.  Due to the financial and administrative costs of  group health insurance, many small churches and nonprofits reimburse employees for individual health insurance plans.  Pre-ACA law allowed this reimbursement and the reimbursement was nontaxable to the employee. 

Under the ACA, such a reimbursement plan became an ineligible health plan subject to fines of $100 per day per participant.  The reimbursement  still isn't taxable, but the plan creates fines to the employer.  In response to the ACA rules, many small employers stopped providing for insurance for employees, a result contradictory to the purposes of the ACA. Other employers weren't aware of the rule changes and continued with plans violating the ACA.  (In 2015, the IRS provided relief to employers violating these particular ACA rules by relieving them of any penalties through June 2015.  The 21st Century Cures Act provides this relief through December of 2016.)

The Myth

In December of 2016, The 21st Century Cures Act (the Act) was signed containing a provision allowing for small employers to reimburse for individual health plan premiums.  Unfortunately, the "Cures Act" did not cure the problem for many small employers, but instead created a myth that the problem was cured.  Once the Act was signed, word spread that individual health insurance premiums could once again be reimbursed and all the prior ACA created issues were rolled back.  Throughout the church and nonprofit community, it was assumed the old ways could be resumed (or continued for those who failed to understand the ACA.)  

The Truth

It is true that the Act provides for a method of providing health insurance through the reimbursement of individual health insurance premiums.  It is not true that the Act allows employers to return to the good ole days of pre-ACA practices.   

The Act created the Qualified Small Employer Health Reimbursement Account (QSEHRA) to provide for an employer's reimbursement of individual health insurance plan premiums and other medical expenses.  The QSEHRA is removed from the ACA's definition of a "group health plan".   The QSEHRA does not return to the days of old, and churches/nonprofits desiring to utilize the it must understand its rules and limitations.

A QSEHRA is for:
  • employers with fewer than 50 full time equivalent employees (FTEs); and 
  • employers not offering a group health plan.
The QSEHRA must:
  • be a written plan;
  • include notification of the plan to employees 90 days before the beginning of the year or for new employees, their eligibility for the plan.  IRS Notice 2017-20 granted relief from this provision for plans starting in 2017.  (There has not been any guidance issued to date, so the penalty relief may be suspended until such guidance is issued.) Penalties for failure to provide the notice are $50 per participant not receiving the notice;
  • be employer funded - no elective employee salary deferrals may be used;
  • reimburse for substantiated medical expenses and premiums;
  • limit reimbursements to annual amounts of $4,950 for an individual or $10,000 for a family plan.   If greater amounts are provided, the additional cash must be for unrestricted purposes or a non-qualifying group health plan not complying with the ACA is created;
  • provide for reimbursements on the same basis for all employees.  There may not be variations for position, length of service, etc; 
Employees should be aware that an insurance policy obtained from an exchange may be reimbursed, but the employee must notify the exchange of the employer reimbursement and cannot claim the reimbursed portion of the premiums for the premium credit.  This educational information is required to be part of any notice given to the employees regarding the plan. 
For churches/nonprofits desiring to institute a QSEHRA, steps should be taken to establish the plan in writing and to provide notice to the employees of the plan for 2018.  While notice requirements may be temporarily suspended, it is best to distribute a notice in accordance with the initial instructions to provide relevant information to employees.  Plans reimbursing individual health insurance premiums, outside of a qualifying QSEHRA, should be terminated immediately as such plans are currently subject to ACA penalties. 

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