minimum essential coverage for any month, the employee may be subject to tax under the individual mandate requirement of the Affordable Care Act, and that reimbursements from the QSEHRA may then be includable in gross income.


If the employer fails to provide the required written notice (unless it can be shown the failure is due to reasonable cause and not willful neglect), the employer is liable for a penalty equal to $50 per employee per incident of failure, up to a total amount of $2,500 per calendar year.


HIPAA. Although unclear, a QSEHRA probably will be considered a covered entity (a health plan) and therefore be subject to HIPAA privacy and security rules. However, if less than 50 employees participate in the QSEHRA, and the QSEHRA is self-administered, then the QSEHRA is not subject to HIPAA rules.


COBRA. QSEHRAs are not subject to federal COBRA continuation coverage requirements.6


Coordination with premium tax credit/ marketplace subsidy. Amounts paid or reimbursed under the QSEHRA for any coverage month will reduce the amount of premium tax credit/marketplace subsidy available to an eligible employee by 1/12 of the employee’s permitted benefit available to be reimbursed under the QSEHRA for that month. If the QSEHRA provides affordable coverage,7 eligible for a marketplace subsidy.


employees will not be 5


Taxability of QSEHRA payments. As discussed above, an employee must have minimum essential coverage 8 for the month in which the medical care is provided in order for the payment or reimbursement from a QSEHRA for medical care expenses described in section 213(d) of the Code to be tax-free to the employee.


W-2 reporting. The employer must report the total amount of permitted benefit for the year under the QSEHRA on employees’ Forms W-2.


Transitional relief extended. The Act also extended transitional relief provided under Treasury Notice 2015–17 to employer payment plans for plan years beginning on or before December 31, 2016. This means that the excise tax under Code section 4980D will not be imposed for any failure to satisfy the market reforms by employer payment plans of small employers (i.e., those that are not applicable large employers) that pay, or reimburse employees for, individual health policy premiums or Medicare Part B or Part D premiums.9


8 3


This summary is provided as an informational tool. It is not intended to be and should not be considered legal advice, and receipt of this information does not establish an attorney- client relationship. For legal advice, please contact one of our attorneys.


Danny Miller dmiller@cwlaw.com (202) 887-4783 Allison Gardner agardner@cwlaw.com (918) 586-8506 Jewelie Grape jgrape@cwlaw.com (651) 633-1717


Footnotes 1


Two of the market reform requirements of the Patient Protection and Affordable Care Act — the annual limit on benefits and the preventive services market reform requirement — previously prohibited most HRAs that are not integrated with a group health plan.


2


Under the Affordable Care Act, an applicable large employer is an employer that employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year. Fulltime equivalent employees include part-time employees, converted to a full- time basis.


Although the Act does not address whether an employee may receive reimbursement for health coverage obtained under a spouse’s employer’s group health plan, a 2015 Chief Counsel Memorandum (201547006) stated that reimbursement for such coverage will be allowed on a pre-tax basis only if the spouse paid for the coverage on an after-tax basis.


4


These amounts will be increased in $50 increments based on changes in the Consumer Price Index for All Urban Consumers.


Permitted benefit means, with respect to any eligible employee, the maximum dollar amount of payments and reimbursements that may be made under the terms of the QSEHRA for the year with respect to such employee.


6


For church plans, it is unclear whether state continuation coverage laws will apply to QSEHRAs.


7


Coverage is affordable for a month if the excess of the amount that would be paid by the employee as the premium for such month for self-only coverage under the second-lowest cost silver plan offered in the relevant individual health insurance market, over 1/12 of the employee’s permitted benefit under the QSEHRA, does not exceed 1/12 of 9.5% of the employee’s household income.


Minimum essential coverage is comprehensive health coverage that is necessary to avoid an individual penalty or employer shared responsibility penalty under the Affordable Care Act. Most employer group health plans and plans sold through the exchange provide minimum essential coverage.


9


Other laws (such as the Medicare secondary payer rules) may prohibit Medicare Part B or Part D reimbursements for certain employers.


Such


employers are not required to file IRS Form 8928 solely as a result of having such an arrangement for plan years beginning on or before December 31, 2016. Please note that this relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums.10


10


As discussed in endnote 3 above, reimbursement from a QSEHRA for spousal health insurance will be allowed on a pre-tax basis only if the spousal insurance was purchased on an after-tax basis.


© 2017 by the Association of Christian Schools International


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