Yesterday, the Internal Revenue Service (IRS) released Notice 2017-67, which provides Q & A guidance on Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). QSEHRAs were established under the 21st Century Cures Act enacted on December 13, 2016. This guidance provides helpful clarifications to the many open ended questions from the original enactment last year, and applies to plan years beginning on or after November 20, 2017. This is the first step toward proposed regulations regarding QSEHRA; the IRS has requested comments on this Notice no later than January 19, 2018.
The IRS Notice details in a question and answer format topics such as employer eligibility, employee eligibility, plan design, statutory limits, written notice requirements, minimum essential coverage (MEC) requirements and proof, claims substantiation rules, reimbursement of medical expenses, interaction with Health Savings Accounts, employer reporting, coordination with premium tax credits, and consequences of failure to satisfy the QSEHRA requirements.
For background on QSEHRAs generally, click here to review our Compliance Buzz when they were first introduced.
Some of the clarifications made in the new IRS Notice are:
- Eligible Employers: To be an eligible employer, the employer with fewer than 50 employees cannot offer another group health plan, including any other Health Reimbursement Arrangements (HRA), or any Health Care Flexible Spending Accounts (FSA), Limited Health Care Flexible Spending Accounts (FSA), and plans that only provided excepted benefits like dental, vision, etc.
- HSA Disqualifying Coverage: Enrollment in a QSEHRA may be disqualifying coverage for health savings account eligibility (HSA), unless it only reimburses HDHP premiums and/or dental, vision, or other permitted coverage.
- Premium Tax Credit: Enrollment in a QSEHRA may impact the premium tax credit.
- No Retiree QSEHRAs: Must be offered only to current, active employees and cannot be waived.
- Options: The same QSEHRA typically must be offered to all eligible employees, but can limit what it reimburses to: 1) just insurance premiums; 2) cost-sharing expenses that are medical expenses; or 3) certain other medical expenses specified under the QSEHRA.
- Statutory dollar limits for 2018: $5,050 Self Only, $10,250 Family (prorated based on number of months an eligible employee is provided the benefit).
- MEC Requirement: Employee must have Minimum Essential Coverage (MEC) in order to get the tax benefit of the QSEHRA. The notice specifies that employees must submit proof of MEC annually at a minimum either by a 3rd party or a specific employee attestation (an example is included in the appendix to the notice). An employee will also need to attest that they continue to have MEC each time they submit for reimbursement, but that can be part of the reimbursement request.
- Substantiation: Substantiation requirements are the same as for a Health Care FSA, as long as the MEC requirement above is also met.
- Cash-outs and Excess Cost: No unused QSEHRA benefits can be cashed out by employees. Employers can allow employees to have premium costs that exceed the maximum QSEHRA benefit deducted on an after-tax basis as long as the employer is not endorsing the policy, insurer, or coverage in any way.
- W-2 and Other Reporting: Employers must report the amount of payments and reimbursements that the eligible employee is entitled to receive from the QSEHRA for the calendar year in Box 12 of the Form W-2 using code FF. No 1095-B form is required for employees eligible for the QSEHRA. QSEHRAs are subject to PCOR fees.
An employer providing a QSEHRA is required to provide a written notice to all eligible employees at least 90 days before the beginning of each year, or for an employee who is not eligible at the beginning of the year, the date on which the employee is first eligible to participate in the QSEHRA. Under a transition rule in the initial legislation, the period for furnishing the first written notice for QSEHRA for 2017 was extended to 90 days following the issuance of further guidance – this IRS Notice constitutes that guidance. This means that for employers currently providing QSEHRAs, the notice must be provided by January 29, 2018.