Death benefits cannot be provided under a QSEHRA. Amounts in the account can only be used for qualified medical expenses. This is because IRC Section 105 provides an exclusion from tax only if amounts are used for qualified medical expenses. Amounts remaining in the account at death may be used to reimburse qualified medical expenses for the deceased eligible employee’s family members so long as the employer applies such terms uniformly to all employees. The employer has the discretion of determining how they would like to address funds remaining in this scenario since QSEHRAs are not subject to COBRA.
No. An employee’s right to his/her QSEHRA account terminates at the end of the last day of employment. The employer has the discretion of determining how they would like to address what happens when an eligible employee terminates employment such as terminating access at the end of the last day of employment, the last day of the pay period, or at the end of the month.
The eligible employee must complete and submit to Surency a QSEHRA claim form along with the appropriate documentation to Surency for processing. The claim form can either be mailed to Surency at Surency AdvantagePlus, P.O. Box 789773, Wichita, KS 67278-9773, faxed to 316-462-3392 or submitted online.
Surency includes a claim form in the initial QSEHRA Welcome Package sent to the employer upon the execution of the Administrative Service Agreement. Eligible employees may also obtain QSEHRA claim forms on this website.
Surency’s QSEHRA claim form provides the eligible employee with detailed instructions as to what is acceptable documentation. The IRS rules require any claim to be substantiated and supported by backup documentation in order to be reimbursed. The backup documentation must include the date of service, description of services rendered, for whom the services were rendered, and the dollar amount of the services rendered. Any third-party documentation including this information will suffice. Here are some common examples of acceptable documentation:
- Explanation of Benefits (EOB) statement from the insurance carrier (the summary of services rendered sent out by the insurance company after services are provided);
- Co-pay receipts are covered if the eligible employee is under a managed care or prescription drug program; and
- Itemized bill that provides the name of the provider, patient, cost, date, and description of service.
There are specific IRS rules for recurring claims, which must be followed in order to take advantage of the QSEHRA benefit. Surency must receive documentation each and every month to process the claim. However, the documentation required is relaxed after the initial set-up of the recurring claim. The claim form also provides additional instructions as to what documentation is acceptable.
When requesting a recurring claim, the eligible employee must submit documentation that contains the following information: completed and signed QSEHRA claim form, date of service or term of the agreement, services rendered, recipient of the services rendered, and cost of service.
Once the initial claim has been set up, there is a decreased burden of proof for subsequent reimbursements. The eligible employee will only need to send either a proof of payment or proof that the claims were incurred such as a letter from the insurance company showing the policy still in force, monthly statement, etc.
No. The IRS prohibits paying claims prior to the claim being incurred. The eligible employee would need to wait until a particular expense has been incurred prior to submitting a claim for reimbursement. The IRS regulations provide that the term “incurred” refers to the date the eligible employee or family member is provided with the care that the particular expense comes from. This date could be different from the date the eligible employee was billed or paid for the expense.
No. A QSEHRA may not reimburse any qualified medical expenses that are attributable to a deduction allowed in any prior taxable year. Also, a QSEHRA may not reimburse a qualified medical expense that is incurred before the date any employee becomes eligible for the QSEHRA.
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is an employer funded “health plan” that may be used to reimburse employees for qualified medical expenses, including individual health insurance premiums. Under existing Affordable Care Act (ACA) rules, “stand-alone” HRAs (except for retiree-only HRAs and HRAs consisting solely of excepted benefits) and HRAs used to purchase coverage on the individual market are considered group health plans that do not comply with certain market reforms of the ACA. Noncompliance with the existing ACA rules may subject the employer to excise tax of $100 per day per applicable employee. The Twenty First Century Cures Act exempts QSEHRAs from parts of ACA’s market reforms by establishing that such arrangements are not considered group health plans.
An employer is eligible to fund a QSEHRA for the current calendar year if the employer had fewer than fifty (50) full-time employees, including full-time equivalent employees, on average during the prior calendar year as determined according to the employer shared responsibility provisions also known as “pay or play”; and the employer does not offer a group health plan to any of its employees.
A QSEHRA generally must be funded solely through employer contributions without any employee salary reduction contributions. An eligible employee must provide proof of Minimal Essential Coverage (MEC) as defined by the ACA before the eligible employee and his/her family members are reimbursed for any incurred qualified medical expenses. Annual reimbursements are limited to $5,050 per employee or $10,250 per family and such reimbursements must be prorated where coverage is for less than the entire year. The QSEHRA must be provided on the same terms to all eligible employees.
An employer funding a QSEHRA for any year must provide a written notice to each eligible employee that includes the following information:
- A statement regarding the maximum dollar amount of reimbursements that may be made for the year with respect to the eligible employee (the “permitted benefit”).
- A statement that the employee should provide information regarding his/her permitted benefit to any Health Insurance Marketplace to which the employee applies for advance payment of the health care premium tax credit (subsidized coverage).
- A statement that, for any month in which the employee does not have MEC, he/she may be subject to an individual shared responsibility payment and reimbursements under the QSEHRA may be includible in gross income.
Effective for years beginning after December 31, 2016, the Notice generally must be provided no later than 90 days before the beginning of the year in which the QSEHRA is funded (or if an employee is not eligible to participate in the QSEHRA as of the beginning of such year, the date on which the employee is first eligible). In addition, effective for years beginning after December 31, 2016, an employee’s total permitted benefit for the year must be reported on his/her Form W-2.
Failure to provide the Notice may result in a penalty of $50 per employee per day with the total penalty not to exceed $2,500 in a calendar year. Penalty relief is available for years beginning after December 31, 2016 as long as the Notice is provided no later than 90 days after December 13, 2016.
QSEHRAs may be used in years beginning after December 31, 2016.
Reimbursements can only be made for qualified medical expenses under IRC Section 213(d) of the eligible employee and his/her family members (as determined under the plan). QSEHRA assets may also be used to reimburse health insurance premiums.
Each qualified medical expense submitted for reimbursement must be substantiated with documented proof as a qualified medical expense by Surency prior to reimbursement from the QSEHRA account.
Reimbursements can be made for expenses incurred as of the effective date of the QSEHRA or the date the eligible employee first became eligible for the QSEHRA (not before). Reimbursements are not permitted for expenses for which a deduction was allowed on any prior year tax returns.
Reimbursements can be made only to those employees who provide “proof of coverage” that qualify as MEC.
Although reimbursements of qualified medical expenses from a QSEHRA are generally excluded from the income of the employee, employers should maintain some form of certification from employees certifying that the employee has minimum essential health coverage (MEC) for tax purposes.
An additional requirement is the employee must have MEC during the month in which the qualified medical expense is incurred. Reimbursement of health insurance premiums should be excluded from tax as long as the reimbursement is for insurance that was MEC. Reimbursement of other qualified medical expenses would only be excluded from tax if the employee had insurance that is MEC at the time the expense was incurred.
If any reimbursement from a QSEHRA is taxable, the employer would be responsible for the tax reporting and withholding. The taxable amount of the reimbursement would be reported on the employee’s Form W-2.
Generally, an individual may not receive health care premium tax credit for purchasing health insurance through a Health Insurance Marketplace if the individual has affordable coverage provided by his/her employer. However, an employee who enrolls in a qualified health plan on the Health Insurance Marketplace, his/her health care premium tax credit may be reduced or eliminated by the benefit available under the QSEHRA.
A QSEHRA must be offered on the same terms to all eligible employees. However, a QSEHRA may disregard employees who have not completed 90 days of service, employees under age twenty-five (25), part-time or seasonal employees, employees covered by a collective bargaining agreement unless the collective bargaining agreement has a provision allowing for this coverage, and nonresident aliens who receive no United States-source income.