The 21st Century Cures Act reintroduced the Stand-Alone Health
Reimbursement Arrangement (HRA) for small businesses, making it possible for them to offer health benefits they may not have been able to afford otherwise. But implementing this new type of plan, known as the qualified small employer health reimbursement arrangement (QSEHRA) or Small Business HRA, can be difficult for businesses whose employees don’t have health coverage.
Because the open enrollment period ended January 31, 2017, businesses that want to start offering the QSEHRA must consider whether making a change outside an open enrollment period would negatively impact their employees.
Transitioning from a Group Health Policy
If your company is transitioning from group health insurance to the QSEHRA, your path is simpler. First, you have to cancel your group health policy. This will trigger a special enrollment period, during which your employees can enroll in individual coverage and immediately begin using the QSEHRA.
You must also comply with the notice requirements of the 21st Century Cures Act, which we cover in-depth here.
This approach allows all employees to begin taking advantage of the QSEHRA immediately.
If You Don’t Have a Current Policy
Fewer than half of very small businesses (1-9 employees) offer group health insurance to their employees. If your business doesn’t offer a group health policy, it's more difficult for the QSEHRA to deliver immediate value to your employees.
Currently, implementing a QSEHRA midyear doesn't qualify employees for a special enrollment period*. That means only employees with existing minimum essential coverage, whether through their own individual policy or a spouse's plan, will be able to access QSEHRA funds on a tax-free basis prior to open enrollment.
Employees currently without MEC will need to wait until the next open enrollment period, or another qualifying life event, to buy a policy and start receiving reimbursements free of income tax. They will still receive reimbursements free of payroll tax. For more information, check out "How the QSEHRA Works for Employees Without Minimum Essential Coverage."
Additionally, the individual market doesn’t include new hires among the conditions that trigger a special enrollment period, which means employees hired midyear without insurance coverage aren’t permitted to received QSEHRA reimbursements tax-free until the next open enrollment period.
However, if the new hire is losing group health insurance through their previous employer, they will qualify for a special enrollment period. This means they will be able to enroll in new individual health insurance and begin accessing QSEHRA funds free of income tax.
Overall, if you're adopting the QSEHRA after offering no health benefits, only employees enrolled in prior coverage will immediately benefit from the income tax advantages of the QSEHRA.
*In Minnesota, becoming eligible for a QSEHRA does qualify employees for a special enrollment period. Businesses and employees in this state will follow a similar path to businesses that canceled a group health policy to offer the QSEHRA.
Many factors go into a company’s decision to implement the QSEHRA. If you’re thinking about making the change outside of an open enrollment period, it’s important to consider how doing so will affect your employees and whether they can take advantage of the income tax advantages of the benefit right away. In some cases, waiting until all employees are eligible to enroll in coverage under the QSEHRA may be the better choice.
Has your business implemented the Small Business HRA outside of an open enrollment period? Share your experience in the comments below.