Small employers are often looking for ways to break out of the community rated market and lower their health insurance costs, as I’ve witnessed firsthand and written about over the years. In more recent posts we’ve discussed reference-based pricing, PEOs and self-funding as methods small employers can use to potentially gain access to more favorable plan designs and rates.
There’s another out which I wrote about just over a year ago that’s worth revisiting. The enactment of the 21st Century Cures Act, signed in December 2016 by President Obama, allows small employers to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). QSEHRAs give employers with fewer than 50 full-time equivalent employees – that do not offer any group health insurance – the ability to help pay for individual insurance premiums and even 213(d) qualified medical expenses for those with Minimum Essential Coverage (MEC), without violating the requirements of the Affordable Care Act (ACA).
An advantage of this strategy is avoiding the one-size-fits-all approach to health insurance. Using a QSEHRA, employees can choose between a variety of individual health insurance plans offered in their state. They could also enroll in their spouse’s health plan and use the reimbursements towards post-tax qualified medical expenses if employers choose. IRS maximums are $5,050 for employer reimbursement to individuals (or $10,250 for families) for 2018.
My question then, is “why haven’t more small employers flocked to QSEHRAs?” Well, maybe the grass isn’t always greener on the other side. Employers still have to comply with a variety of notice and reporting requirements that carry high excise taxes for non-compliance. Reimbursements have to be substantiated and verified before payment is made or the QSEHRA risks losing the tax-advantage status for all participants – even if due to administrative error.
And the freedom of more options often sounds good until the realization that most plans in the individual health insurance market offer access to smaller networks than employer-sponsored health plans. There’s also limited support from quality insurance agents and carrier representatives to help navigate the individual insurance markets.
If a small employer decides the QSEHRA is the right way to go it’s important that they partner with a third-party administrator that can handle the reimbursements and provide support with notice and reporting requirements.