Some churches used to reimburse health insurance premiums as a benefit to their employees. The passage of the Affordable Care Act initially made that illegal – they wanted all employers to offer group health insurance to their employees. But now the 21st Century Cures Act has made it possible for churches to reimburse health insurance premiums again.
This fix was around in 2017, but it flew under my radar. This stuff just won’t stop changing! Here’s what I’m learning:
The Old Way to Reimburse
Before the ACA, group health insurance plans were stupid-expensive if your church only had a handful of employees. And rates were based on things like the age of your oldest employee and whether any of the employees or their dependents had preexisting health conditions. That made it impractical for many smaller churches to offer group insurance.
Some churches had figured out that they could reimburse their employees for health insurance premiums. It didn’t count as income to the employee (at least not taxable income), so it was kind of like the employee had to get their own individual policy but the church “paid” for it.
Starting in 2015, the penalty for continuing an arrangement like this was $100/day/employee. Many churches stopped offering any kind of plan or reimbursement and the employees were forced to go to their ACA insurance exchange.
The New Way (QSEHRA)
Now churches, within certain limits, can return to a kind of reimbursement arrangement.
For this to work, your church has to:
- Have fewer than 50 employees
- NOT offer a health insurance option
If you reimburse health insurance premiums through QSEHRA, you must cover employees except:
- employees younger than 25
- part-time or seasonal workers (though can opt to cover them)
- employees in their first 90 days on the job
- …and a few other categories that would be unusual at a church
So basically you have to offer the same benefit to all full-time employees. You can’t discriminate between clergy and non-clergy. But “same benefit” can be a percentage such that each employee doesn’t necessarily get the same dollar amount.
Some other rules for a QSEHRA:
- 2018 Reimbursements can’t exceed $10,250/yr for family coverage ($854.17/mo) or $5,050/yr for employee-only ($420.83/mo)
- Employees have to maintain and prove that they have Minimum Essential Coverage – and those popular health care cost sharing ministries don’t count
- Employees have to turn in receipts (which means churches have to review & pay them)
- Your church will have to adopt a formal QSEHRA plan document
- …and probably a few other rules, too
Converting to a QSEHRA
If your church has been around long enough to have done things the Old Way, you may fixed it by just increasing everyone’s salary by the amount you’d been reimbursing them. But under this new arrangement, your church can’t go back. MinistryWorks tells us, “Your ministry cannot ‘carve out’ a portion of workers’ wages to fund the benefit. The benefit must be paid in addition to regular wages.” So now you’d have to increase everyone’s salary again.
A huge drawback is that creating a QSEHRA program also creates a HUGE bureaucratic burden. You’ll have to:
- Give every employee proper written notice (and document it)
- Get receipts for expenses and proof of coverage from employees
- Report the reimbursement amount on their W2s
- Comply with HIPAA privacy and data security requirements
- Figure out if it creates any ERISA obligations
Another drawback I see is if the employee has been getting a tax subsidy that pays for part of his/her health insurance premium through the ACA exchange: their subsidy will be reduced by the amount of the QSEHRA they receive, even down to $0. So basically the cost is transferred from the government (taxpayers, really) to the church. Why would your church sign up to pay what’s already being paid by the government? Just calling it like I see it.
Add to that, nobody is writing about whether employees have to count the QSEHRA reimbursements as qualifying income they’d have to report to their ACA exchange. I’m not sure anyone really knows the answer to that yet. But worst case would be ‘yes’, which would double-ding the employee.
I’d have to see the math work out for me to be excited about this. For now and as far as I can math it, doesn’t sound like a win-win yet.
Special thanks to Doug Foltz at Stadia Church Planting for putting this on my radar.