Finally some good news about health care for small employers

It’s not getting much press coverage, but “The 21st Century Cures Act” that passed Congress and was signed by the President on December 13 includes a gift for some small businesses and their employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) provision in the new law restores (mostly) the method that many used before Obamacare—giving employees a tax-free fund of up to $4,950 per year with which to buy individual coverage of their choice.

The most important thing to realize is that implementing a QSEHRA for your employees requires setting up a formal plan and following the rules and requirements.  It’s much less involved than setting up a group insurance plan, but most business owners will need professional help to do it right.

The key provisions to keep in mind when deciding if this sounds like an appealing option for your business are:

  • The business may not offer any group health insurance at the same time.
  • The plan must be funded 100% by the employer (without deducting anything from pay checks).
  • The plan must be offered to all “eligible” employees. But not all employees have to be “eligible”.  You are allowed to exclude part time and seasonal staff, those under 25, and anyone in their first 90 days of working for you.
  • The amount provided to each employee must be the same, except for adjustments due to differences in the cost of their health insurance resulting from age and family size.
  • Employees have to document insurance coverage and medical expenses bought with the payments, or they become taxable income to the employee. You (or your broker) have to receive and record that documentation.

If your employees are currently getting premium subsidies, the money they get from an HRA will reduce the amount of the subsidy.   This may cause some employees to have the same out-of-pocket costs with the HRA that they have without it—in which case they may not value it enough to be worth your implementation costs.

Although the new HRA’s are supposed to take effect on January 1, 2017, the law also requires the employer to provide 90 days’ advance notice of the applicable rules.  I’ve yet to find an explanation of how to pull that off, given that the law arrived only 18 days before the first.   Most likely we’ll see plans take effect later in the year.

A Qualified Small Employer Health Reimbursement Arrangement won’t be the right fit for every business.  But it gives another option for those small horse businesses who want to help their loyal, full-time-plus employees cope with the rising cost of health care.

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