When Congress created the qualified small employer health reimbursement arrangement (QSEHRA) in December 2016, legislators were careful to set it up as an exception from the Affordable Care Act. Rather than a group health plan, the QSEHRA is an “excepted benefit”—a way to offer health benefits without being subject to group plan rules.
Regardless of its status, though, the QSEHRA is still subject to general ERISA requirements. That includes the need to establish a legal plan document.
Where can you get QSEHRA plan documents?
Because of the complexity of ERISA and IRS requirements, most small organizations offering a QSEHRA work with an HRA administrator like PeopleKeep or a Third Party Administrator (TPA) TPA to create plan documents and handle administration. Even so, some organizations are interested in setting up a QSEHRA and managing a QSEHRA themselves. That means taking on the responsibilities of drafting a plan document.
In this post, we’ll discuss all the requirements associated with QSEHRA plan documents and what those documents should include.
Why does my organization need a QSEHRA plan document?
ERISA Section 402 requires that every employee benefit plan, including the QSEHRA, be “established and maintained pursuant to a written instrument,” or plan document. ERISA also requires organizations to make the document available to participants.
No specific penalties apply for failing to prepare and adopt a QSEHRA plan document, but an organization will be subject to fines if QSEHRA participants request to see the document and the organization doesn’t produce it.
If the organization doesn’t share the plan document within 30 days after a participant makes such a request, it could be required to pay the IRS a penalty of up to $110 per day.
What does my QSEHRA plan document need to include?
To be compliant, QSEHRA plan documents are required to include certain items. They may optionally include some other items that make it more useful.
Following are required and common optional information included in QSEHRA plan documents:
- Named fiduciaries and plan administrators and their responsibilities*
- Eligibility requirements for the QSEHRA
- Effective dates of participation
- Description of benefits provided and excluded
- How the QSEHRA is funded and how it makes payments*
- Claims procedures
- HIPAA privacy officers and rules relating to the use of protected health information (PHI)
- Information on federal mandates*
- The procedure for amending the plan*
- The procedure for plan termination
* Required by ERISA
The following sections discuss each of these items in more detail.
For complete information, download the guide: How to Self-Administer a QSEHRA.
Named fiduciaries and plan administrators and their responsibilities
The QSEHRA plan document must specify one or more named fiduciaries who have the authority to control and manage how the plan is operated and administered.
Named fiduciaries agree to accept “fiduciary duty” for QSEHRA participants, meaning they’ll act solely in the participants’ best interest and pay only reasonable expenses.
The document should also specify a plan administrator for the QSEHRA and clearly outline the administrator’s duties.
Plan administrators duties might include:
- Interpreting the plan.
- Designing QSEHRA participant forms.
- Communicating the QSEHRA to participants.
- Signing plan administration documents.
- Maintaining plan data.
- Appointing individuals to assist in plan administration.
Most small organizations will designate the company as the named fiduciary and plan administrator.
Eligibility requirements for the QSEHRA
The plan document should outline eligibility requirements for QSEHRA participation.
Under IRS requirements, the organization must extend eligibility to all full-time employees. The spouses and dependents of eligible employees are also automatically eligible.
The organization can choose whether to extend the benefit to part-time workers.
Effective dates of participation
The plan document should define effective dates of participation for QSEHRA-eligible employees.
The organization can have an effective date as early as the employee’s first day with the company or as late as 90 days after the employee’s date of hire.
Description of benefits provided and excluded
The plan document should define which medical expenses are eligible for reimbursement and which aren’t.
The QSEHRA can reimburse participants for all items IRS Section 213(d) defines as “medical care.” (see IRS Publication 502). If the company wants to make exclusions, it should make an itemized list in the plan document.
The document should also include the monthly allowance amounts available to employees for reimbursement. Organizations can offer different allowance amounts to employees, based on family status.
How the QSEHRA is funded and how it makes payments
The plan document must specify how the company makes QSEHRA payments, for example: payroll, cash, or ACH.
Under ERISA, plan documents must create and follow “reasonable procedures” throughout the claims process. In the context of a QSEHRA, a “claim” means a reimbursement request from a participant.
QSEHRA plan documents must establish and maintain reasonable procedures governing:
- Claims filing
- Notification of claims decisions
- Appeals of adverse (declined) claims decisions
Although the company has some freedom in crafting these procedures, ERISA offers specific guidelines on handling adverse claims decisions.
HIPAA privacy officers and rules relating to the use of protected health information (PHI)
Organizations with fewer than 50 full time equivalent (FTE) employees are exempt from much of HIPAA, however they are not exempt from the HIPAA Privacy Rules, These rules control the conditions under which the plan can share protected health information (PHI) with the company. Additionally, employees expect employers will respect their privacy and comply with HIPAA standards.
Penalties for HIPAA noncompliance are no joking matter. From the less-serious "Reasonable Cause" to the more-serious "Willful Neglect," these civil penalties can range from $100 to $50,000 per incident with no jail time to more serious offenses resulting in up to $250,000 in fines and 10 years in prison, especially if information was taken under false pretenses or disclosed on purpose.
Because of this, it’s highly recommended that organizations fully adopt HIPAA. To do so when implementing a QSEHRA, organizations will want to designate HIPAA privacy officers in the plan document. HIPAA privacy officers should include the individual or group who will be exposed to the participants’ PHI. These officials are almost always the same person or group as the plan administrator.
The plan document should also specify rules restricting and regulating the use and disclosure of PHI, in accordance with HIPAA Privacy Rules. Additionally, it should address PHI protection, in accordance with HIPAA security rules.
Information on federal mandates
QSEHRA plan documents must discuss how the QSEHRA behaves in relation to the Family and Medical Leave Act (FMLA) and Uniformed Services Employment and Reemployment Rights Act (USERRA), as well as certain other federal mandates.
The procedure for amending the plan
The plan document must specify the steps the company will take to amend the plan, including identifying the individuals who have authority to amend the plan.
The document must also outline the process the company will use to notify participants of a “material amendment” to the plan. ERISA requires that organizations notify participants no later than 210 days after the close of the plan year for which the amendment was adopted. However, if the amendment “materially reduces” the plan’s benefits or services, the company must notify participants within 60 days.
The procedure for plan termination
ERISA requires the company to describe the organization’s and the employees’ rights if the organization decides to terminate the QSEHRA. This includes describing how the company will handle plan assets.
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Are there any other QSEHRA plan document requirements?
In addition to establishing a legal plan document, ERISA requires organizations to create a Summary Plan Document (SPD). As the name suggests, the SPD is a summary of the QSEHRA plan document. While the plan document is detailed and legalistic, the SPD should be written in language the average QSEHRA participant can understand.
ERISA § 2520.102-3 outlines the required contents of the SPD. In general, it should be sufficiently comprehensive to inform participants of their benefits, rights, and obligations under the plan.
The organization must distribute the SPD to participants. For first-time QSEHRAs, the company must deliver the SPD within 120 days after the plan is established. For newly eligible participants in an existing QSEHRA, the organization must deliver the SPD within 90 days of the participant gaining coverage under the benefit. HRA administration software providers typically automate this process, delivering and keeping these documents available electronically.
What are my options for creating QSEHRA plan documents?
Drafting QSEHRA plan documents isn’t a task an organization should undertake itself. It’s highly likely these documents, if challenged, will be found noncompliant and get the company into legal trouble.
If the plan documents operate outside of the strict QSEHRA definition in Section 9831 of the IRS Code, the organization could face fines of up to $100 per day per employee.
As an alternative, some small organizations contract with an attorney to draft the plan documents and SPD. However, the cost for this service can easily exceed $2,000. Even purchasing prewritten plan documents costs at least $200—a cost that must be incurred any time the organization wanted to make amendments.
To avoid these costs, as well as the risks associated with administering a QSEHRA, many small organizations use a QSEHRA administration software vendor, like PeopleKeep, who have experts in-house to help them design benefits that meet the organization’s objectives, automates the generation and maintenance of all legal documents, and automates much of the work of managing the benefit.
Key features to look for in QSEHRA administration software include: personalized plan documents, free plan amendments, online benefit administration, the ability to easily document reimbursements, and tools that ensure you remain compliant with federal and state rules.
Ready to learn more? Download our HRA compliance tool kit
This post was first published January 4, 2018. It was last updated October 23, 2020.