By Salvatore Schibell CPA, CFP®

The Affordable Care Act (ACA) imposed various market reforms on health insurance arrangements, such as prohibitions on annual limits and cost sharing. After passage of the ACA, the IRS determined that the market reforms the ACA provided applied to deny health reimbursement arrangements. These were traditionally used by many small businesses to reimburse employees for health insurance costs.

Congress carved an exception to the ACA’s prohibitions for Qualified Small Employer Health Reimbursement Arrangements, (QSEHRA), in the passage of the 21 Century Cures Act signed into law by then President Obama in December of 2016. The Act generally provides that a small employer, defined as having less than 50 full time employees, that does not offer a group health plan to any of its employees may provide a QSEHRA to eligible employees.

The QSEHRA can provide payments and reimbursements to employees, that have obtained health insurance from other sources such as ACA, for medical expenses that cannot exceed $4,950 for single coverage, or up to $10,000 for an arrangement that cover family members. The plan must be solely funded by the employer for all eligible employees.

The plan refers to eligible employees that are defined as any employee of the employer, however the employer may exclude the following;

  • Employees that have not completed 90 days of service
  • Employees who have not attained the age of 21
  • Part time or seasonal workers
  • Employees represented by a collective bargain arrangement
  • Employees who are nonresident aliens and who receive no earned income from the Employer

The effective date commences with tax years beginning after December 31,2016. The employers’ adopting a plan are required to provide notice to the employees as to the details of a health plan and eligibility requirements.

In conclusion, this medical reimbursement arrangement is a meant for small employers that do not provide health insurance an employer tax-deductible fringe benefit to their employees. Contact Sal Schibell, CPA at Lawson, Rescinio, and Schibell at 732-531-8080 if you would like to speak further on this medical reimbursement arrangement.