A Health Care Reimbursement Option Now Available
Evaluate Your Ministry’s Health Insurance—Deadline to Act is March 13, 2017.
Small businesses—including churches and related ministries—can once again pay premiums for their employees’ health insurance. These arrangements were previously known as an Employer Payment Plan (EPP) or Health Reimbursement Account (HRA). Such arrangements violated the Affordable Care Act (ACA). However, due to a recently passed law, ministries that are not part of a group health plan now have another option to help employees with health care costs.
21st Century Cures Act
The 21st Century Cures Act went into effect at the end of 2016. It includes a provision known as the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). QSEHRA allows eligible employers to pay or reimburse eligible employees for medical care expenses (see who qualifies, below). The tax-free benefit includes insurance premiums and eligible out-of-pocket medical expenses.
Which ministries are eligible?
Previously, ministries used EPPs to help pay employee health insurance premiums. With the passage of QSEHRA, ministries may once again find reimbursement plans preferable to offering a group insurance plan. However, the new law does have a few new restrictions. To be eligible to offer a QSEHRA plan to employees, your ministry:
- Must have less than 50 employees. Any ministry that does not meet the definition of an Applicable Large Employer (ALE) as defined in the Affordable Care Act is eligible to participate. ALEs are employers that have 50 or more full-time and full-time equivalent employees.
- Cannot offer both a QSEHRA plan and a group health insurance plan. If your ministry currently offers a health insurance plan to employees, then you will need to drop your current plan to be eligible to offer a QSEHRA plan.
Which employees are eligible?
The new law also contains restrictions for which employees are eligible to participate. Eligible employees must meet both of the following criteria:
- Any employee aged 25 years or older.
- Full-time employees with 90 days or more of service.
How does QSEHRA work?
Your ministry can implement a QSEHRA plan for your employees using the following guidelines:
- Payment/reimbursements cannot exceed $4,950 single coverage or $10,000 for family coverage.
- The ministry must offer the same terms of reimbursement to all eligible employees. Example: A ministry may choose to cover 75% of its employees’ health insurance premiums. In this example, the percentage amount is the same for all employees, regardless of employee’s role in the ministry or whether the employee is married or has dependents. This may mean that some employees receive a higher reimbursement amount, but the terms are the same for all employees.
- Your ministry cannot “carve out” a portion of workers’ wages to fund the benefit. The benefit must be paid in addition to regular wages.
- The employee must maintain minimally essential health insurance while participating in a QSEHRA plan. Acceptable health insurance plans include an individual policy, spousal coverage, or Medicare. Health insurance may be purchased privately or through the Marketplace at healthcare.gov. Any benefit provided by the ministry to an employee without health insurance coverage will be considered taxable income.
- Employees need to provide proof of coverage to the ministry.
- The plan must be offered to the employee for the full 12 months (see Can my ministry begin using this method for 2017?, below). The only exception is if an employee was previously ineligible, but becomes eligible during the year. Example: An employee turns 25 after the first of the year. In this case, the amount offered can be prorated for the remaining months.
- Employers who implement a QSEHRA plan will need to adopt formal QSEHRA plan documents and follow compliance requirements as they would for other health insurance plans offered to employees.
The ministry must furnish an informational statement explaining the QSEHRA policies to employees 90 days before the end of a calendar year (see Can my ministry begin using this method for 2017?, below). The statement must include an explanation that the employee is subject to penalties under the ACA if coverage is dropped.
Are there additional requirements?
A QSEHRA plan also should comply with other federal and state requirements and best practices you already have in place. For example, you may need to have a separate summary plan document for the QSEHRA plan and make sure that you are meeting all HIPPA privacy and security rules. Additionally, you may want to check with your tax advisor before setting up the plan to make sure that your employees will not be negatively impacted by other tax consequences.
What are the employee responsibilities?
Employees need to carry insurance that meets the requirements for minimally essential insurance coverage. Ministry employees should know employer payments may affect their ability to obtain tax subsidies offered through the insurance exchange.
Can my ministry begin using this method for 2017?
There’s still time to change health insurance options for your employees. Normally, changes would take effect at the beginning of the year. But because the law is new, ministries have until March 13, 2017, to issue a change notice to employees. If you plan to wait until 2018 to incorporate changes, ministries should issue the notice 90 days before the end of 2017.
Many ministries may welcome this news. However, before making any changes, consult with a locally licensed attorney, benefit consultant, or tax professional.