Small Group QSEHRA: Is It Right for My Small Business?
On Dec. 13, 2016, President Obama signed the 21st Century Cures Act, which allows small businesses (under 50 full-time equivalents) to establish stand-alone health reimbursement arrangements. While this method of funding an employee’s premium used to be very popular prior 2010, the Affordable Care Act prohibited employers from offering this type of arrangement.
Although employers are now able to offer employees a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), there are several challenges and limitations that should be considered before going down this path.
- Network Limitations: The networks differ drastically compared to the group market. Carriers have limited or scaled back networks of doctors and hospitals to choose from, forcing many individuals to change doctors and hospital systems.
- Market Uncertainty: Since the Affordable Care Act, many individual carriers have decided to no longer participate, leaving individuals with limited choice and carrier options in the individual market. In 2017, UnitedHealthcare pulled out of the individual market, leaving only three carriers; Humana recently announced they will not be participating in 2018.
- Maximum Benefit: The maximum benefit an employer can reimburse under an HRA is $4,950 (or $10,000 for family coverage), which ends up being $413 per month. Since rates are based upon age and plan design, many individual plans end up far exceeding this amount.
- Enrollment restrictions: As the health law stands today, open enrollment begins on Nov. 1 for a Jan. 1 effective date. Open enrollment ends on Jan. 31. A challenge is presented when an employee is hired mid-year, particularly if they do not have insurance at the time. The individual market does not consider hiring a new employee a “special enrollment”, meaning the individual would not be able to purchase an individual plan until next open enrollment.
- Cost: The rates for individual plans compared to group plans are very similar; although in the group market there is much more flexibility and plans available within each carrier. Not to mention, the group carriers encompass larger or national networks. The majority of the time, the national network and superior plan design make up for the small cost difference.
- Employer Responsibility: Although offering a QSEHRA may seem like less responsibility for the employer, the employer is still responsible for having a Plan Document on file, along with providing employees with a Summary Plan Description to meet ERISA requirements. It is also up to the employer to report their contributions on each employees’ W2.
There are several factors to consider before implementing a QSEHRA, and although some guidance has been released, there are still many unanswered questions. We will continue to monitor this legislation and provide updates with any changes and/or further guidance.