1. What every TAHU Member should know about
This C.E. course is provided to you by the
Texas Association of Health Underwriters
P. O. Box
Houston, TX
Course #
Provider # 32408
What every TAHU Member should know about
QSEHRAs
February, 2018
You must attend at least 90% of this presentation, complete all required forms and include your license number in order to receive continuing education credit. All comments regarding this CE may be sent to the address above or by to

2. Jessica J. Watts VP, Compliance Frost Insurance
Presented by:
Jessica J. Watts VP, Compliance Frost Insurance

3. Health Reimbursement Arrangements
Mid-1990’s : Employer funding of individual insurance plans prohibited. TIC Secs (2) and (2)
2006: TDI Bulletin #B explained prohibitions
2011: TIC Sec added to permit this funding practice for certain policies and if it complied with state and federal laws
2013: IRS Notice prohibits employers from reimbursing individual policy premiums for employees.
2015: IRS Notice provides transition relief, but only for non-ALEs and only through June 30, 2015.
2016: Congress passes the 21st Century Cures Act with Sec creating an exemption to federal law and permitting this funding practice by employers.
Texas Insurance Code
Federal Law

4. Health Reimbursement Arrangements
With numerous pieces of conflicting guidance, there have been two general acceptable approaches with HRAs.
Integrated HRA
Standalone HRA

5. Integrated vs. Standalone
Integrated HRA
Standalone HRA
Must be “integrated” with a group health plan
Used to reimburse deductibles, co- insurance or co-payments
Generally prohibits payment of individual premiums through standalone HRA
Exceptions for spousal coverage, retiree-only and Medicare enrollees

6. Standalone HRAs Medicare HRA Retiree HRA Spousal HRA
Employee must be covered on spouse’s group health plan.
Employer can reimburse co- pays, deductibles, co- insurance of being covered on spouse’s plan, but not premiums.
Former employees eligible based on employer’s definition of retiree
Employer can reimburse all or a portion of the individual health insurance premiums or Medicare related costs
Benefit is tax-free to retiree
Employer had 1-19 employees for 50% or more business days of preceding calendar year
Employer can reimburse all or a portion of the cost of Medicare related coverage (Part B, PDP, Supp premiums)
Benefit is tax-free to employee

7. New Standalone HRA QSE HRA
With the passage of the 21st Century Cures Act in December, 2016, a new type of Standalone HRA is permitted: Qualified Small Employer Health Reimbursement Arrangements (QSEHRA)
QSE HRA
This new type of arrangements permits certain employers to offer their employees a special type of stand-alone HRA to help pay for medical care expenses on a pre-tax basis- including the purchase of individual policies and major medical coverage.
It avoids the ACA’s prohibition on “employer payment plans” which were prohibited under IRS Notice and prohibit employer reimbursement of individual insurance premiums.

8. Qualified Small Employer
1. Not an Applicable Large Employer (ALE)
Must average fewer than 50 full-time equivalent employees during prior calendar year
Remember that ALE determination includes other employers based on controlled group rules. For any employer in the group to offer a QSEHRA, the group as a whole must have had fewer than 50 full-time equivalent employees in prior calendar year.
State definitions of small employer do affect the calculation
2. Does not offer group health to any employee
If currently offering health insurance, must terminate plan prior to offering benefits under QSEHRA
QSE HRA
Open Issue: Do the controlled group rules apply, such that if any employer in the controlled group offers a GHP, all employers in the group are ineligible?
Open Issue: What is a “group health plan” for this purpose? Does it include an excepted benefit, such as a dental plan? There has been no clarification to date from the IRS.

9. Eligible Employee QSE HRA
QSEHRA must be offered to all nonexcludable “employees”
May exclude employees who:
Have less than 90 days of service
Are under age 25
Part-time or seasonal workers (not defined)
Covered under collective bargaining agreement
Non-resident aliens with no U.S. earned income
Uniform reimbursement
Variations in the amount of the Permitted Benefit are permitted based on age and number of family members.
This is determined based on the premiums of certain insurance policies in the relevant individual health insurance market.
QSE HRA
Open Issue: Cures Act does NOT define “employee” or “family member.” Best practice is to use common-law employee definition until further guidance.

10. Benefits
QSEHRA pays or reimburses for any 213(d) qualified medical expense
Includes paying premium for individual coverage
Employer can set maximum benefit amount up to annual limits
Annual maximum benefit of $4,950 for self-only or $10,050* for family
Limits will increase based on changes to Consumer Price Index
Amount could vary based on employee age
Maximum benefit is prorated based on months that employee eligible during calendar year (similar to HSA, not FSA)
Permitted to limit benefit to employee only
Employer must fund 100% of the QSEHRA’s benefits
No employee contributions allowed (either pre- or post-tax)
*indexed limit for 2017.
QSE HRA
Open Issue: The fact that Cures did not define “family member” could be problematic for determining if reimbursement is tax-free. For example, there is an employer who decides to reimburse expenses for dependents who are full-time students up to age 29, or a domestic partner. These individuals are not covered under the IRS definition of tax dependent for health coverage purposes, therefore reimbursement must be taxable and employer needs to impute income.
Open Issue: May an employer further limit which family members whose qualifying medical expenses may be reimbursed?

11. Benefits QSE HRA Examples of Ineligible Expenses:
Already reimbursed from a different source
Premiums paid by the employee on a pre-tax basis for coverage under a group health plan of another employer (such as through a spouse).
May an employer design its program to further restrict eligible expenses, for example, premiums only, or all 213(d) expenses except premiums?
Substantiating claims will likely mean most employers need to engage a TPA
Employer must fund 100% of the QSEHRA’s benefits
No employee contributions allowed
QSE HRA
Open Issue: The fact that Cures did not define “family member” could be problematic for determining if reimbursement is tax-free. For example, there is an employer who decides to reimburse expenses for dependents who are full-time students up to age 29, or a domestic partner. These individuals are not covered under the IRS definition of tax dependent for health coverage purposes, therefore reimbursement must be taxable and employer needs to impute income.
Open Issue: May an employer further limit which family members whose qualifying medical expenses may be reimbursed?

12. MEC Coverage Required QSE HRA
Employers may pay or reimburse expenses only after employee provides proof of “other coverage”
Employee’s “other coverage” must be Minimum Essential Coverage (MEC)
Excepted benefits are not MEC (standalone dental or vision)
Under Code Section 5000A, MEC includes individual market coverage (whether purchased through the Marketplace or not), another employer’s group health plan, Medicare, Medicaid, CHIP or TRICARE
What proof is acceptable?
Self-certification, copy of insurance policy, other?
QSE HRA

13. Employer Plan Document
Although excepted from IRS Code, ERISA and PHSA Provisions, QSEHRAs were not excepted from compliance with requirements under the IRS Code, ERISA or PHSA that do not depend on GHP status such as:
ERISA Title I general compliance requirements (plan document, SPD and reporting requirements)
The ACA’s Cadillac Tax
Requirements under other federal laws, such as HIPAA’s privacy and security rules
Audience Participation: What changes need to be made to an existing HRA document to create a QSEHRA plan document?
Open Issue: The HIPAA Exception for a plan with fewer than 50 participants applies only if the plan is self-administered. For a majority of these plans, a TPA will administer and thus, it appears this exception will NOT apply.
Audience Participation Possible Answers:
Take all references to COBRA out of document,
Remove annual accrual information, replace with monthly accrual.
HRA’s inherently have a carryover feature, so does this inadvertently violate annual maximum or nondiscrimination issues?
QSE HRA

14. Employer Reporting QSE HRA
Report benefit amount on employee’s Form W-2
Separate reporting requirement than ACA’s Box 12, Code “DD” Form W-2 reporting requirement.
Amount reported is the “Permitted Benefit”- i.e. maximum amount QSEHRA can distribute for the year.
Does not impact employee’s taxable income, but will likely be used to coordinate entitlement to premium tax credits/cost- sharing subsidies.
QSE HRA

15. Employer Notice QSE HRA Annual notice to all eligible employees
Outlines who is eligible and QSEHRA permitted benefit.
Inform employee to notify Marketplace of QSEHRA benefit if applying for premium tax credit.
Remind employee of requirement to maintain MEC or else, individual mandate penalty could apply.
Remind employee that QSEHRA payments can be taxable if MEC is not maintained.
Deadline: 90 days prior to beginning of year* and no later than first day of eligibility for new hires.
Limited Penalties for Failure to Provide Notice
$50 per employee
$2,500 calendar year maximum
*Pending guidance (See IRS Notice ), for years beginning in 2017, an initial notice is not yet required but employers may rely on reasonable good faith interpretation of the statute to determine notice content
QSE HRA

16. Important Clarification Needed
Is an employer required to pay for any 213(d) health care expense?
Silent as to whether employer can limit reimbursements to:
only certain types of expenses (e.g. deductible, premiums) or
after some amount has been satisfied (e.g. paying $1,000 toward deductible expenses)
No clear guidance on whether employer may limit Permitted Benefit
Despite prorated benefit limit, can an employer set monthly maximum reimbursement (e.g. $300 of health insurance premium)?
Employee must substantiate “proof of other coverage”
Employer must maintain records to substantiate health care expenses reimbursed or paid to employee- but without running afoul of HIPAA PHI issues.
QSE HRA
Open Issue: “Other coverage” is not defined. Statutory language does not require the other coverage to be individual market coverage.
Open Issue: Is MEC coverage required when someone has an exemption from Section 5000A such as participation in a Health Care Sharing Ministry or income is below 100% of FPL?
Open Issue: What proof is required, what must an employer do to verify it? Employee’s self-certification, May an employer require other documentation, such as a copy of an insurance policy or certification from the coverage provider?
Open Issue: Must dependents whose expenses may be reimbursed by the QSEHRA also have MEC?

17. Important Clarification Needed
TDI Bulletin #B is still in place
Carriers are restricted from accepting an application for individual policies if employer is providing a reimbursement
Many other states currently prohibit or restrict funding of individual medical policies by employers (by imposing penalties on carriers and brokers/agents)
Examples: Montana, Tennessee have similar language to Texas
Texas Insurance Code

18. Important Clarification Needed
On Aug. 11, 2017, Attorney General Ken Paxton acknowledged receipt of a request to clarify the state/federal preemption conflict from Sen. Charles Perry.
Texas Insurance Code

19. Important Clarification Needed
Will states enact Legislation to permit employer funding due to 21st Century Cures? Minnesota just did!
SF 1/Chapter 2 (Benson / Hoppe)
Minnesota Statutes, 62L.12, subdivision 2(m)- Exceptions:
(m) A health carrier may offer, sell, issue, or renew an individual health plan to one or more employees of a small employer if the small employer, eligible employee, and individual health plan are in compliance with the 21st Century Cures Act, Public Law , section
21st Century Cures Act - The bill also includes a provision that allows carriers to sell, issue or renew an individual health plan to one or more employees of a small employer if the small employer, eligible employee, and individual health plan are in compliance with the 21st Century Cures Act. This provision became effective when it was signed into law.
Minnesota Insurance Code

20. Regulatory Relief QSE HRA No COBRA continuation requirement
Employer does not have to allow a previously eligible employee to continue to receive QSEHRA benefit
QSEHRA is not subject to certain ERISA mandates
No exemption from Title I (plan document, SPD and reporting)
Other mandates may still apply (e.g. HIPAA Privacy & Security)
QSE HRA

21. Types of Standalone HRAs
QSEHRA
Spousal HRA
Retiree HRA
Medicare HRA
Active Employees?
Yes No
Employer Size
Non-ALE
All
1-19 EEs
Offer Group Health Plan
Prohibited
Required
Impact on Premium Subsidies
Complicated
APTC Prohibited
n/a
Reimburse health premiums
Yes and other 213(d) expenses
Only cost of coverage on spouse’s plan
Medicare only
Flexibility to limit amount or benefits
Unclear

22. QSEHRA vs. Premium Tax Subsidies
Is Employer Coverage Affordable?
Three “safe harbors” today to answer this question
New law creates a special way to assess affordability when there is a QSEHRA in place:
EMPLOYEE COST
QSEHRA is “affordable” for a month if the excess
of the Second Lowest Silver Plan for Self-Only coverage
minus 1/12 of QSEHRA benefit
is not greater than 1/12 of 9.69%* of EE’s
household income
*Affordability percentage for 2017

23. QSEHRA Impact 55 YEAR OLD EMPLOYEE
Spouse who is same age with two children who are 20 years old or younger
Household Income: $40,000
Living in Clay County, TX
Second Lowest Silver Plan for Self-Only $835.55
1/12 of QSEHRA benefit ($4,950/12) $412.50
Net Cost of EE Only Coverage: $423.05
9.69% of EE’s household income (monthly amount) $323.00
EMPLOYER COVERAGE due to QSEHRA is unaffordable ($ > $323.00)
Since QSEHRA does not meet affordability standard, the employee would be eligible for a premium tax credit. However, the monthly premium tax credit is reduced by 1/12 of the employee’s permitted benefit under the QSEHRA. In this case, by $ per month.

24. QSEHRA Impact 35 YEAR OLD EMPLOYEE
Spouse who is same age with two children who are 20 years old or younger
Household Income: $60,000
Living in Collin County, TX
Second Lowest Silver Plan for Self-Only $251.09
1/12 of QSEHRA benefit ($4,950/12) $412.50
Net Cost of EE Only Coverage: $0
plus $ additional available for cost-sharing
9.69% of EE’s household income (monthly amount) $484.50
EMPLOYER COVERAGE due to QSEHRA is affordable ($0 < $484.50)
Employee will lose premium tax credit subsidy (plus any cost-sharing subsidies they are receiving)
We are generally seeing that QSEHRA plans are best suited for small employers with only highly paid employees, because generally the design will end up leaving lesser paid employees ineligible for premium tax credits and cost-sharing subsidies.

25. Consequences of Noncompliance
Failure to satisfy QSEHRA requirements means… the design is not a QSEHRA.
ACA’s PHSA Mandates likely apply
Employer excise tax of $100 per day, per employee ($36,500 annually) could be assessed
Common failures
Employer has 50 or more full-time equivalent employees (is actually an Applicable Large Employer)
Offers other group health plan coverage (such as a plan to managers)
Fails to require proof of “other coverage”
Fails to comply with nondiscrimination requirements

26. Questions?

27. This program provided by:
Texas Association
of Health Underwriters
This course is approved for 1.0 Hour of General CE
Course #
Provider # 32408
P. O. Box
Houston, Texas 77207
If you feel this course was not conducted in accordance with the continuing education requirements determined by the Texas Department of Insurance, please address all concerns to Kellie Merritt, Executive Director, Phone