The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), part of the 21st Century Cures Act signed into law by President Barack Obama on December 13, 2016, makes available to small employers a new option to provide health reimbursements or payments to eligible employees by setting aside IRS guidance that made stand-alone health reimbursement arrangements (HRAs) subject to penalties under the Affordable Care Act (ACA). It appears, however, that the new option will not be available until 2018.

QSEHRAs are limited to small employers, who are defined as employers that did not have an average of 50 or more full-time employees (including full-time equivalents) in the prior year and who do not offer a group health plan to any employees. If an employer opts to offer QSEHRAs, they must be offered to all employees, with certain exceptions. The employer may exclude the following employee categories from QSEHRA eligibility:

• Employees under age 25
• Part-time and seasonal employees
• Employees who have less than 90 days of service
• Non-resident aliens without income from sources within the United States
• Employees covered by a collective bargaining agreement if health coverage was a subject of good faith bargaining

QSEHRAs, like standard HRAs, must be funded solely by employer contributions—no employee contributions are allowed. The maximum annual benefit is $4,950 if only the employee is covered and $10,000 if the employee and his or her family are covered. Although QSEHRAs must generally be offered to all eligible employees on the same terms, the amount of benefits may be varied depending on the price of health insurance in the relevant individual market based on age and family size. QSEHRAs are not subject to COBRA.

An employer that will offer QSEHRAs must provide a notice to its employees with the following information:

• The amount of the QSEHRA benefit
• A statement that if the employee purchases coverage on a Health Insurance Exchange and applies for advance premium credits, the employee must inform the exchange of the QSEHRA coverage
• A statement that if the employee does not have other coverage that constitutes minimum essential coverage, the employee may be subject to penalties under the individual mandate provisions of the ACA, and the QSEHRA reimbursements might be included in the employee’s gross income

The notice must be provided at least 90 days before the beginning of the year, which seems to make QSEHRAs unavailable for 2017.

As with any new legislation, the details are contained within the implementing regulations promulgated by the relevant federal agencies, and it may be months before any QSEHRA regulations are issued. 

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