New Medical Expense Reimbursement Plan Option

Churches who discontinued reimbursing medical insurance premiums and/or qualified medical expenses of employees because of the Affordable Care Act may want to re-visit this practice.  Now there is a permissible non-taxable way to do so if the administration is in compliance with what is known as a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).  This formal plan may be administered by the church, or the church may contract with a third party.  Penalties apply if the plan is not administered properly and the church must be compliant with HIPPA regulations if it chooses to administer the plan.

A QSEHRA has been provided for by the 21st Century Cures Act passed by the U.S. Congress.  Because of its design, it is not subject to the same requirements of group health plans and is not subject to the $100 per day per employee penalty for failure to comply with the so called market reforms of the Affordable Care Act that apply to group health plans.  Although the reimbursement arrangement is still being fully interpreted by legal experts, at this point the following information seems to be generally accepted.

A QSEHRA can be offered by an eligible employer.  An eligible employer is one who has fewer than 50 full-time equivalent employees and who does NOT offer a group health plan to any of their employees.  The QSEHRA must be fully funded by the employer.  Contributions by employees through salary reduction or other contributions are not permitted.  An employer may contribute on an annual basis up to $4,950 per employee or a maximum of $10,000 per family.

A QSEHRA must be provided on the same terms to all eligible employees by an eligible employer except the following employees may be excluded:  employees who are part-time or seasonal, employees with less than 90 days of service, employees who are under 25 years of age, and nonresident aliens with no earned income from sources within the United States.  Variations of benefits based upon age and the agreed upon participants such as employee only, or employee and spouse or dependents are permitted.  But the variations must be applied equally to all employees.  To participate on a non-taxable basis, an employee must provide proof of coverage by health plan insurance that has minimum essential coverage as defined by the Affordable Care Act.  An employee who obtains health insurance through a public exchange and qualifies for subsidized coverage must report the amount received from a QSEHRA.  The federal subsidy will be reduced by the amount received from a QSEHRA.

A QSEHRA allows for the employer to reimburse the participating employee for medical insurance premiums and/or qualified medical expenses not covered by the employee’s health plan insurance.  No reimbursement should be made without documented evidence of the employee having actually incurred the premium or medical expense item being reimbursed.

An employer must comply with timely notice and reporting requirements.  Although new employees may begin participating immediately an employer may wish to stipulate a waiting period in the QSEHRA plan.  Otherwise, an employer must provide written notification of the benefit to employees 90 days prior to the start of the plan year.  The written notice must provide the amount of the available benefit, a statement that the employee must provide the benefit amount to any health exchange to which the employee applies for advance payment of the premium tax credit, and a statement that if the employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment under the Internal Revenue Code 5000A for that month and reimbursements under the arrangement may be includible in gross income.  Further clarification regarding employer notice requirements are anticipated from the IRS.  Failure to provide notice may subject an employer to a penalty of $50 per employee up to a maximum of $2,500 per year.  An employer must also report the employee’s permitted benefit for the calendar year on Form W-2 in Box 12 using the code FF.

Violations of the QSEHRA rules can leave the employer subject to the $100 per day per employee excise tax as determined by the Affordable Care Act.

Contact Churches of God, General Conference Director of Finance & Treasurer, Bob Stephenson, at treasurer@cggc.org or 419-424-1961 if your church would like a sample plan document and a sample plan summary which are required for adopting this plan benefit.