Many Security and Integration company owners are setting up a Qualified Small Business Health Reimbursement Agreement (QSEHRA) plan. The plans, created in December 2016 as part of the 21st Century Cures Act, allow small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want. Most security and integration owners don’t have the resources to provide a traditional health insurance plan. As a result, their employees are forced to secure their own health insurance and their middle class employees are not eligible for much, if not all, of the credits available through the Affordable Care Act. A QSEHRA can be an excellent way to provide your employees with tax free funds to purchase their own health care.
The IRS outlines the rules for QSEHRA (which stands for Qualfied Small Employer Health Reimbursement Arrangement) and most small businesses are eligible to participate. Here is a simplified summary of QSEHRA eligibility:
- The employer must have fewer than 50 full-time employees.
- The employer cannot offer a group health plan to any of its employees. If a group health plan is provided, the employer will have to cancel it before the QSEHRA can start.
- Employees must have a health insurance plan that meets minimum essential coverage in order to participate — short-term plans, indemnity and faith-based sharing plans do not qualify as MEC. Also, QSEHRA is designed to work with tax credits employees may have received from the marketplace to purchase their insurance. Any tax credits the employee receives on their premiums will be reduced dollar for dollar by the QSEHRA.
There are no minimum contribution limits. The IRS sets the maximum contribution limits each year for QSEHRA. For 2018 the maximum contribution limits are $420 per month per single person or $854 per month per family. QSEHRA is funded solely by the employer and the employee cannot contribute to the fund. The reimbursement amounts must be offered fairly to all employees- the rates can vary by family size, or all employees can be offered the same rate. Part-time, seasonal employees under 26 years, and employees on a spouse’s group plan can be excluded from the QSEHRA.
Employers can choose to reimburse premiums only or premiums and medical expenses.
Owners can even be included in a QSEHRA if the owner is considered an employee of the business. So, if you take a salary from your business you may be eligible.
You can even administer your own QSEHRA, it may be difficult for a small business to keep up with the changing regulations as they occur. Since its inception, the IRS has issued two major guidance changes and has promised more in the future. Many owners do not have the time or resources to research and stay current on law changes insuring they are compliant.
In addition, the IRS requires small businesses to keep records up to seven years. That means the owner would need a secure way to keep employee medical receipts and their personal health information secure and safe for up to seven years.
And lastly, another important item for employers to consider is employee privacy. For reimbursements to be tax-free, you have to substantiate that employees are using it to pay for health insurance and medical expenses. Information about employees’ medical expenses (including individual insurance premiums) is considered Protected Health Information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). As an employer, asking for employee medical records is a HIPAA privacy violation. Plus, it can get awkward for employees to disclose personal medical information to their boss.
A QSERA can be an easy way to provide health insurance to your employees, while allowing you to give employees with different needs plenty of flexibility. Talk to your tax advisor about the benefits of these plans. If you still have questions, please give us a call.
Mitch Reitman is the Managing Principal of Reitman Consulting Group, Inc. and a member of the Electronic Security Hall of Fame. He can be reached at 817-698-9999 or at Mitch@Reitman.US.