The 21st Century Cures Act reintroduced the 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.
When the QSEHRA was created, Congress didn’t add a special enrollment period (SEP) for employees who become newly eligible for the benefit outside of open enrollment. That means that employees without current health insurance have to wait until the November to December open enrollment period to purchase individual coverage, which allows them to receive QSEHRA reimbursements free of income tax.
However, a new rule regarding HRAs changes that. Beginning January 1, 2020, the transition to a QSEHRA will become much simpler for employers and their employees due to a newly available special enrollment period.
What is open enrollment?
Open enrollment is the designated annual period during which persons are able to sign up for individual marketplace coverage that meets the requirements for minimum essential coverage (MEC). This period is usually from November 1 to December 15.
With current marketplace regulations, it isn’t possible to enroll in an individual policy (non-group insurance) at any other time during the year, unless the person enrolling qualifies for a special enrollment period.
What is a special enrollment period (SEP)?
A special enrollment period is a period in which individuals are able to enroll in an individual insurance policy on the marketplace outside of the standard open enrollment period.
Qualifying for a special enrollment period is dependent on qualifying life events, or changes in coverage. If someone qualifies for an SEP, they will have 60 days from the qualifying date to enroll in coverage. Read on to find out more about how the new rulings will positively affect QSEHRA SEPs.
Transitioning from a group health policy
If your company is transitioning from group health insurance to the QSEHRA, your path is simple. First, you have to cancel your group health policy. That will automatically trigger a special enrollment period for all of the participating employees, during which your employees can enroll in individual coverage and immediately begin using the QSEHRA on a tax-free basis to be reimbursed for their premiums and other medical expenses.
This approach allows all employees to begin taking full advantage of the QSEHRA immediately.
QSEHRA special enrollment periods
In addition to your company transferring from a group health insurance policy, there are a few other situations in which your employees will qualify for a SEP. These qualifying events will be expanded further for companies offering a QSEHRA in 2020!
In addition to the original qualifying events, starting January 1st, 2020, your employees can qualify for a SEP with the QSEHRA if:
- Your company begins offering the QSEHRA for the first time
- A new employee is hired mid-year and is offered the QSEHRA
- An existing employee becomes eligible for the QSEHRA mid-year due to a change in employment status (either for the first time, or becomes eligible again during the year)
Another important thing to note is that when a SEP is triggered for your employees due to a qualifying event, they can shop for a new policy even if they are currently enrolled in an individual policy. That means they can adjust their coverage based on the allowance they’ll be receiving through the QSEHRA.
The triggering event for the QSEHRA SEP is the date the employee is first eligible for coverage. Beginning with that date, employees will have 60 days to shop for and purchase individual health insurance during their SEP.
For example, if a business decides to offer a QSEHRA for the first time beginning June 1, 2020, employees will have until July 31, 2020 to purchase health insurance.
Once they have coverage, they’ll receive all their QSEHRA reimbursements free of income tax*.
*Employees without minimum essential coverage (MEC) can still participate in the QSEHRA and get reimbursements free of payroll tax. However, they must pay income tax on all reimbursements received during the time they’re without coverage.
Before the new HRA ruling, employees that didn’t have previous coverage or were offered a QSEHRA mid-year had to wait until the next open enrollment period to purchase an individual health insurance policy that met the MEC requirements. Those who didn’t have an MEC policy could still participate in the benefit, but they had to pay income tax on all QSEHRA reimbursements they received.
The new rules effective January 1st, 2020 will make it easier for your company to transition to a QSEHRA by allowing your employees to sign up for qualifying coverage immediately rather than having to wait to enroll. They’ll be able to choose a policy based on their QSEHRA allowance and receive 100 percent tax-free reimbursements for their premiums and their other eligible expenses.
Editor's Note: This post was originally published March 29, 2017. It has been updated to reflect the most recent information.