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.
Because of the complexity of ERISA and IRS requirements, most small businesses offering a QSEHRA work with another group to establish plan documents and handle administration.
In this post, we’ll go over all of the requirements associated with QSEHRA plan documents and what those documents should include.
Why does my business 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 businesses to make the document available to participants.
No specific penalties apply for failing to prepare and adopt a QSEHRA plan document, but a business will be subject to fines if QSEHRA participants request to see the document and the business doesn’t produce it.
If the business doesn’t share the plan document within 30 days after a participant makes such a request, it could be required to pay the participant up to $110 per day.
What does my QSEHRA plan document need to include?
To be compliant, QSEHRA plan documents must contain certain items. There are also optional items that, if included, make for a more useful plan document.
We’ll list both ERISA-required and optional QSEHRA plan document items, and then explain each in more detail below.
All QSEHRA plan documents should include:
- 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
*Specifically required by ERISA
For information on each of these items—beyond what is contained below—download our free eBook, 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, among other duties.
The document should also specify a plan administrator for the QSEHRA and clearly outline the administrator’s powers.
Plan administrators can potentially:
- Interpret the plan.
- Design QSEHRA participant forms.
- Communicate the QSEHRA to participants.
- Sign plan administration documents.
- Maintain plan data.
- Appoint individuals to assist in plan administration.
Most small businesses 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 business must extend eligibility to all full-time employees. The spouses and dependents of eligible employees are also automatically eligible.
The business 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 business 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.” 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, specifying allowance amounts by family status.
How the QSEHRA is funded and how it makes payments
The plan document must specify how the company makes payments to and from the QSEHRA.
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)
Self-administered health plans that cover fewer than 50 employees aren’t required to comply with most HIPAA rules.
Regardless of company size, though, HIPAA Privacy Rules control the conditions under which the plan can share protected health information (PHI) with the company. Additionally, employees expect HIPAA standards.
If the company decides to observe HIPAA in implementing a QSEHRA, the plan document should designate HIPAA privacy officers. HIPAA privacy officers are 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 businesses 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 business’s and the employees’ rights if the business decides to terminate the QSEHRA. This includes describing how the company will handle plan assets.
Are there any other QSEHRA plan document requirements?
In addition to establishing a legal plan document, ERISA requires businesses 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 so that the average QSEHRA participant can easily understand it.
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 business 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 business must deliver the SPD within 90 days of the participant gaining coverage under the benefit.
What are my options for creating QSEHRA plan documents?
Drafting QSEHRA plan documents isn’t a task a business 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 business could face fines of up to $100 per day per employee.
As an alternative, many small businesses contract with an attorney to draft the plan documents and SPD. However, the estimated cost for this service exceeds $2,000. Even purchasing prewritten plan documents costs at least $200. What’s more, the document seller wouldn’t be available to help with any plan amendments.
To avoid these costs, as well as the risks associated with administering a QSEHRA, many small businesses choose a QSEHRA administration tool.
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.