By Latrica Schooley
Self directed health plans, consumer driven options, personalized benefits, benefits shopping spree…all of these terms have been used to describe defined contribution health plans. As professionals in the benefits industry, it is our imperative to delve deeper for those depending on our advice. In uncovering a plan design it is very easy to remove what appears to be the golden fleece and expose Medusa’s hair if the design is flawed.
So, why the interest in defined contribution health plans? For small business it is a way to competitively provide for the cost of benefits in a predictable, controlled manner. For these employers it is important to reiterate that this is not a health plan per se but an alternative approach to financing and managing health care for employees.
Factors that contributed to the emergence of these plans were:
- Creation of QSEHRA in 2016 through the 21st Century cures act
- Increased costs- consumers have seen higher premiums, deductibles and rx costs
- Push for transparency
- Competition for the best employees
Rachel Miner, president of Thrive Benefits, healthcare consultant and strategist, has seen the plans gain traction in other markets but not in her market. ”On paper, I really like the strategy but it is hard to get the freedom and flexibility employers and employees are seeking without education. Who is managing the plan? Who is educating the employers and employees? Is this truly a good fit for this specific partner?”
So let us start at the beginning, when the House of Representatives passed 21st Century Cures Act in December 2016. QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) was born with this bill that supported a provision that allowed HRAs (health reimbursement arrangements) for small businesses. Here is how the QSEHRA works:
- Employer Sets a Monthly Allowance. The amount must be uniform, there are no minimum contributions and allowances can be different for employee only, or employee and family… The maximum contribution cannot exceed federal guidelines for 2018. Please consult your tax account. Limits are adjusted annually.
|2018 Guidelines||Annual Maximum||Monthly Maximum|
|Employee & Family||$10,250||$854.16|
- Employees make qualified purchases. These qualified purchases include individual health insurance premiums, individual dental or vision premiums, prescription and some non-prescription drugs. Please see Internal Revenue Code 213 d for eligible expenses or changes to qualified reimbursements.
- Employees submit proof of expenses. Proof of expenses include invoices, receipts or explanation of benefits from the carrier.
- Employer’s review and reimburse employee’s qualified expenses.
There are requirements for employers and employees in order to receive tax advantages. Employers must have a plan document, must have less than 50 full time employees (ale), and cannot offer any employee a group health plan, only employer can contribute to QSEHRA. Employees must have a MEC plan to receive any reimbursements.
Employers have chosen these arrangements because:
- Employer defines contribution amount and controls budget
- Costs are only incurred when employees receive reimbursement
- Pre funding is not required
- Unused funds stay with employer
Naama Pozniak, a well-respected healthcare innovator and CEO of A+ Insurance Services, has had a different experience in surrounding benefits market. ”I have had employer partners request these plans and after a year it does not work because in our market there are not affordable individual health insurance options. The best option for employees is a group plan in this market when it is available. It is all about education and I am here for my partners but this has not been a good model here. In order for the arrangement to be success it must be in a competitive individual market. If that does not exist, it would be a challenge to make the plan design work.”
It is very important as advisors to understand that in some markets this can be a good fit there are consequence such as penalties to employers if plans are not set up correctly or notices are not provided on a timely basis. The consequences start at $50 per employee or excise taxes of $100 per day. Take a moment what is the need you are trying to fill for the client? Is it to attract and retain talent? Is it to decrease cost? Is it to help employee survive the financial hardships of the current healthcare market. What solutions will you offer and how will you build this arrangement? Whom will you collaborate with or recommend as a partner to administer the plan for the employer? This is not a one size fits all solution and requires proper setup, administration and compliance. However, this can be a good solution with the right conditions and can open doors for other needed plans such as ancillary by freeing up dollars and providing greater choice it requires some sharing of knowledge, the right partners, the right plan design and the ability to coordinate and streamline as needed. Please make sure to consult with your accountant regarding tax consequences and plans updates or details as this is just for informational and is subject to change at any time.
For over 24 years Latrica Schooley has been a leader in Insurance Industry first as an agency owner and has been noteworthy in the last 16 years in the Voluntary Benefits space from her work as an Area Director and most recently as a Regional Broker Manager. She has been honored with LPRT, All American and a consistent top producer in the industry and has been featured in Benefit Pro, developed continuing education programs for her Broker partners, served on the Board of NAIFA and been active in her NAHU chapter. Her greatest accomplishments by far are of being a wife , mom and a lifetime learner in order to give back to the industry that has given her so much.