The Internal Revenue Service has issued lengthy rules and guidance for small companies that offer health reimbursement plans in lieu of insurance, providing needed clarity, but also new and potentially complicated administrative burdens.
The guidelines, released in a 59-page notice that takes effect Nov. 20, offer comprehensive details on eligibility and the dos and don’ts for using so-called Qualified Small Employer Health Reimbursement Health Arrangements, or QSEHRAs, which allow companies that are exempt from Affordable Care Act employee coverage mandates to instead offer tax-free bonus plans to help cover their workers’ insurance premiums or healthcare expenses.
Such plans, which were loosely regulated and common among small businesses before being effectively banned under the ACA, were reinstated by Congress effective this year, but only for companies with 50 or fewer workers, and only if they offer equal benefits for all eligible employees.
While those rules were laid out in the initial legislation, Lisa Carlson, a senior attorney and benefits expert with the Lockton Companies, says “there wasn’t a lot of clarity with regard to actually complying with a lot of the terms.”
The new rules cover everything from who’s eligible to how to register and how to report coverage on employee’s W-2 forms.
“It’s a huge amount of administration, honestly, for small employers,” Carlson says.
The plans, she says, “could be attractive to a small employer if they had an administrator that was savvy in the structure and the administration. … I would think it would be very hard for a small employer to just look at this and say, ‘I am setting this up without any assistance.’”
Among the more notable provisions, she says, is a reminder that employers must get written proof from participating workers that they do indeed carry a health insurance plan that meets the minimum requirement under ACA.
Additionally, Carlson says, any claims must be substantiated.
In other words, Carlson says, “before you pay somebody you have to get proof that they have a claim that is eligible.”
The guidelines also make it clear that QSEHRAs that cover out-of-pocket medical expenses for anything other than preventive care make employees ineligible to participate in health insurance savings plans, while plans that only reimburse premiums and/or out-of-pocket expenses for non-HSA disqualifying benefits will not.
Other notable rules, she says, include provisions that employers provide all employees descriptions of their plans by Feb. 19 to avoid penalties, and that they register each participant and pay an annual fee if $2.39 each to the ACA’s Patient-Centered Outcomes Research Institute.
Despite the lengthy rules, Carlson says, the value of the plans is that they once again give small companies a way to make sure that the extra money they are giving them in lieu of insurance is actually being used is being used for healthcare.
But, says, because the reimbursement are made on a pre-tax basis, “one of the consequences of not doing it correctly is creating extra taxation for the employees” if the plan or payments from it are found to be in violation of the rules.
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