Presented by Chris Martie HRA’s and QSEHRA Presented by Chris Martie DP-1038-081216

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HRA’s

HRA Brief History Created in 1954 by the 83rd Congress and signed into law by President Eisenhower Primary focus was to allow small business to reimburse medical expenses for employees Primary goal was to keep young people in small towns from leaving and going to larger cities where employers offered health insurance benefits

HRA Brief History In 2002, the Internal Revenue Service, working on behalf of the Treasury Department released two letter rulings in June and July. The first was 50 pages in length and was found to be very difficult to understand. The second was 13 pages in length, was easier to understand, and became the benchmark under which we operated for Health Reimbursement Arrangements (HRAs).

HRA Brief History The primary goal of these letter rulings was to re-introduce Section 105 to employers for the purposes of saving health insurance premiums by going to higher deductibles or for the reimbursement of other out-of-pocket expenses.

HRA Basic Rules The HRA benefit is fully funded by the employer. The benefit design allowed for a number of different options, as long as there was no discrimination, whether by class of employees or by benefit design. The benefit needed to be a reimbursement of a medical out-of-pocket expense that met the definition of 213d within the IRS Code.

HRA Basic Rules The HRA plan must be integrated into the group medical program or it could be stand-alone(dental only/vision only/retirement) The HRA plan could be either a calendar or fiscal year plan and could either be funded for that plan year only, or could have unused employee dollars carrier over to the next year or years.

Plan Design Options Primary or secondary deductible reimbursement Co-insurance reimbursement Rx reimbursement Doctor’s office copay reimbursement Emergency room reimbursement Self-funded dental plan Self-funded vision care plan Combination of any of the above expenses

What HRA plans are both integrated and exempt from ACA HRA plans that reimburse portions of: 1) Deductible Out of Pocket 2) Co-insurance Out of Pocket 3) Co-Pays Doctors Office, RX and Emergency Room would be prime examples In all cases these must be integrated into a group health insurance plan that meets the minimal benefit standards of ACA.

Plan Designs that are non-integrated and are still exempt 1) HRAs for retired employees 2) HRA programs that cover dental expenses 3) HRA programs that cover vision care expenses Important Note - Stand alone HRAs that cover a specific expense or all 213d expenses but are not tied to an acceptable ACA group medical plan will be considered both not integrated and non-exempt.

HRA Example Denver-based employer with 10 employees. The employer pays 100% of the group insurance premium and 100% of the HSA contributions based on how the employee is insured on their plan. They have four employee only and six employees covering dependents. They currently have a $2,850 employee only deductible and $5,700 deductible for those covering dependents.

Benefit and Plan Considerations Looking at a $5,000/$10,000 deductible plan with 100% being paid. Total annual savings for the health plan alone is $45,000. They are also looking at not funding the employees HSA accounts with a savings here of $49,000. Total up front savings of $94,000. Employer willing to construct the HRA to pay the last $3500 for employee only deductible and the last $7,000 of employee’s deductible who is insuring dependents, leaving them with a total exposure of $56,000 ($3,500 times 4 employees and $7,000 times 6 employees) This would leave employees with the first $1,500 of their deductible expense and $3,000 for the employee insuring dependents. Firm has health issues and at least three employees will meet their out of pocket maximums (two employee only and one with dependents). The anticipated utilization is $25,000. This would save the firm a total of $69,000.

Employee Options Continue to fund their current HSA accounts for either $1,500 or $3,000. If these funds are not used then under the HSA rules they would remain in the account. Employees now have some “skin in the game”

Employer Cost Considerations Administration cost for third party would be $1,500 annually. Filing a Form 720 for PCORI (Patient-Centered Outcomes Research Institute). The cost for these two plans will be $2.26 per participating employee and is based on the average number of participants per month through out the plan year.

Other important considerations All enrolled employees in the HRA must be an enrolled member in the employer’s group insurance program that meets the minimal standards of ACA. The HRA must be consistent in the benefit paid by class of enrolled employee, be it for employee only, employee and limited family or full family. Dependent children will be covered until their 27th birthday if dependent coverage is selected that includes the child coverage definition.

Affordable Healthcare Act and its impact on HRA programs Technical Releases by the IRS in early summer of 2013 and the Department of Labor on September 13, 2013. Both releases are in full agreement on the following: HRAs must contain benefit definitions that are integrated with group health insurance plans that meet the acceptable standards of ACA to be exempt from the unlimited lifetime maximums. Under both technical releases the following was stated:

HRA’s and Individual Health Plans Individual health insurance plans either paid directly by an HRA or reimbursed to the employee will no longer be considered integrated or exempt from ACA. In both releases and in the questions and answers section of the DOL release this was clearly stated. This regulation was implemented on January 1, 2014.

QSEHRA

21st Century Cures ACT Enacted on December 13, 2016 Allows Small employers to offer HRAs to employees under section 9831(d) Effective January 1, 2017

QSEHRA Defined QSEHRA (Qualified Small Employer HRA) Is a new type of tax preferred arrangement that small employers may use to help their employees pay for medical expenses known as a “qualified small employer health reimbursement arrangement” (QSEHRA); Is not a group health plan under section 9831(d)(1)

QSEHRA Eligible Employer For small employer to be eligible to offer QSEHRA: Cannot be an ALE (Applicable large employer) in prior calendar year; Less than 50 full-time employees (including FTEs) full-time equivalent; FTE employee is one who works 130 hours per month, or 30 or more hours per week for 120 consecutive days. Controlled Group Rules apply under 416; Related entities are treated as a single employer under section 414(b), (c), (m), or (o) including entities described under section 414(b) or (c), an affiliated service group under section 414(m), or an entity in an arrangement described under section 414(o). The employees of each member of the Controlled Group are added together to determine ALE status. Cannot offer a group health plan to any of its employees; May not be an ALE as defined in Code Section 4980H(c)(2)

QSEHRA Employer Requirements A QSEHRA must meet the following conditions: Be provided on the same terms to all eligible employees. benefit may vary based on the cost of health insurance tied to the employee’s age and/or number of family members covered. Thus, an employer could provide a greater benefit to an employee who is older or covers multiple family members. Be funded solely by the employer. No employee salary reduction contributions are allowed. pay or reimburse an employee for medical expenses under Code Section 213(d) following proof of coverage. Eligible expenses include premiums for an individual health insurance policy. reimbursements under the Qualified HRA do not exceed $4,950 for the employee only or $10,000 for family coverage. These amounts are pro-rated for an employee who is covered for a partial year or where there is a SPY. Employers must MEC to determine if benefits under the plan are taxable or tax free. Employer must obtain proof of coverage and maintain records related to ongoing coverage

QSEHRA Employee Requirements Participant is required to maintain a benefit plan that meets MEC (minimum essential coverage) as defined under ACA to receive tax free benefits. Can be private individual coverage Can be covered under spouse’s group health plan (cannot be reimbursed under QSEHRA premium plan). Can be Medicare supplement plans Employees not covered under MEC plan reimbursements will be taxed on w-2. Premium Tax Credit If an employee enrolls in a qualified health plan on the Marketplace, his or her premium tax credit will be reduced by the benefit available under the QSEHRA dollar for dollar.

QSEHRA Excludible employee(s) Employers may exclude the following from QSEHRA plan; Seasonal employees; Part-time employees; Workers covered by a collective bargaining agreement in which accident and health benefits are subject of good faith negotiations; Employees with less than 90 service days; Employees under age 25; and Certain non-resident aliens

QSEHRA Employer Administrative Requirements Under Section 9831(d)(4)(B), the employer must provide written 90 notice at the beginning of the plan year and for newly eligible employees during plan year. Notice must contain following information: The amount of the permitted benefit under the Qualified HRA for the year; A statement that if the employee is applying for advance payment of the premium tax credit for health insurance on the Marketplace, the employee must inform the Marketplace of the amount of the permitted benefit under the Qualified HRA. A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to a tax under Code Section 5000A and reimbursements under the Qualified HRA may be taxable income.

QSEHRA Employer Administrative Requirements (cont’d) Under a transition rule, for 2017, the employee notice must be provided within 90 days after the date of enactment of the new law(by March 12,2017) An employer is subject to a penalty of $50 per employee for a failure to provide the notice, up to $2,500 per year unless timing is due to reasonable cause. Employers must include amount of available benefits on employees’ W-2s.

Notice 2017-20 March 13 “The notice extends the period for an employer that provides a qualified small employer health reimbursement arrangement (QSEHRA) (under a new Code section added by 21st Century Cures Act (Cures Act) to furnish an initial written notice to its eligible employees regarding the QESHRA.” “The notice extends the period from March 13, 2017 (90 days after the Cures Act was enacted) to at least 90 days after additional guidance regarding the contents of the QSEHRA notice is issued. The notice also provides transition relief from penalties under section 6652(o) (also added to the Code by the Cures Act) for failure to furnish such written notice until after further guidance has been issued.”

Notice 2017-20 March 13(cont’d) “In order to provide eligible employers additional time to furnish the initial required written notice to eligible employees following the issuance of such guidance, an eligible employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 is not required to furnish the initial written notice to those employees until after further guidance has been issued by Treasury and the IRS” The further guidance that the IRS will provide, will specify a deadline for providing the initial written notice that is no earlier than 90 days following the issuance of that guidance

QSEHRA Miscellaneous COBRA- DOES NOT APPLY QSEHRA is not treated as a group health plan for purposes of COBRA continuation coverage. SBCs (Summary of Benefits and Coverage) are not required CMS reporting not required No annual PCORI Fees

QSEHRA Miscellaneous Caution on Colorado state mandate Colorado state law – C.R.S 10-16-105.2 section 1.5 “Notwithstanding any other provision of law, a small employer that does not have, and has not had in the previous 12 months, a small group health benefit plan providing coverage to it employees under this article may reimburse an employee, whether through wage adjustments or health reimbursement arrangements, for any portion of the premium for a health coverage plan.” Employer can not have a group plan in place for the previous 12 months in order to consider a QSEHRA

Thank You!