QSEHRA Update: IRS Provides Promised Additional Guidance for Qualified Small Employer Health Reimbursement Arrangements

<p>ERISA and Employee Benefits Update</p>

QSEHRA Update: IRS Provides Promised Additional Guidance for Qualified Small Employer Health Reimbursement Arrangements

In late 2016, the 21st Century Cures Act became law and allowed eligible small employers to establish stand-alone health reimbursement arrangements known as Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). A QSEHRA allows eligible small employers who do not offer a group health plan to reimburse employees for qualified medical expenses without coming under the Affordable Care Act's (ACA) mandates, provided certain requirements are met (see our earlier post for additional information on QSEHRAs and their requirements). On October 31, 2017, the IRS issued the additional guidance it promised earlier this year to small employers looking to establish QSEHRAs for their employees. Notice 2017-67 provides valuable information for small employers who are implementing these arrangements, effective for plan years beginning on or after November 20, 2017. 

The Notice includes 79 comprehensive Questions and Answers, addressing issues such as employer and employee eligibility, interaction with ACA requirements, reporting obligations, and more. It also serves as the additional guidance that triggers full compliance with the written notice requirement. Some of the many issues addressed in the Notice are described briefly below.

Employer eligibility:

  • Otherwise eligible small employers may offer a group health plan to retirees because former employees are not treated as employees (Q&A 1).
  • All employers with sufficient common ownership are considered together for purposes of determining employer eligibility (Q&A 5).

Same terms requirement:

  • To qualify, a QSEHRA must be provided on the same terms to all eligible employees.
  • This requirement is met if the employer caps reimbursements at a set dollar amount, regardless of whether self-only or family coverage applies (Q&A 14).
  • This requirement is also met if the employer caps reimbursements at the self-only or family coverage statutory limit (or a percentage of each limit) (Q&A 15).
  • An employer is permitted to limit QSEHRA reimbursements to certain types of expenses (for example, premiums) (Q&A 21).
  • An employer must provide the same reimbursement offer to all employees; an employer is not permitted to offer employees a choice between different options (Q&A 20).

Statutory dollar limits:

  • Statutory dollar limits are prorated for newly eligible employees, based on each month in which the employee is QSEHRA-eligible for at least one day (Q&A 30).
  • An employee can generally repay, with after-tax dollars, a reimbursement mistakenly made in excess of the statutory limit by March 15 of the following year to avoid any penalties to the employee or employer (Q&A 34).

Written notice requirement:

  • For 2017 or 2018, the written notice must be furnished by the later of February 19, 2018, or 90 days before the first plan year (Q&A 35).
  • The written notice must include the amount of the permitted benefit, the date the QSEHRA is first available, and statements relating to the interaction between the QSEHRA and the advance premium tax credit and the interaction between the QSEHRA and the requirement to maintain minimum essential coverage (Q&A 38).
  • Sample language for the written notice is provided (Q&A 38).

The Notice addresses many other issues, including the substantiation requirements for establishing that an employee has minimum essential coverage or that a reimbursement was for qualified medical expenses, the penalties for different types of non-compliance, requirements relating to employer contributions to and employee eligibility for health savings accounts, and employer reporting obligations. 

This detailed and very helpful guidance from the IRS provides important direction to small employers, enabling them, in conjunction with their plan and legal advisors, to implement QSEHRAs for their employees with a greater understanding of the law's requirements.