Alert / Employee Benefits
IRS Offers (Very) Comprehensive Guidance on Small Employer HRAs

The IRS recently clarified the how, what, when, where and why of offering Qualified Small Employer Health Reimbursement Arrangements, or QSEHRAs. In a nutshell, QSEHRAs provide an opportunity for employers too small to be subject to the Affordable Care Act’s employer mandate to offer cash reimbursements to employees for individual health insurance policies, as well as reimbursement for out-of-pocket healthcare expenses. For more about QSEHRAs please refer to our prior Alert.

The IRS’s new guidance – 79 questions and answers in Notice 2017-67 – applies to QSEHRA plan years beginning on or after Nov. 20, 2017. The guidance answers questions such as:

  • When is an employer eligible to sponsor a QSEHRA?
  • How does an employer identify employees who are eligible to receive reimbursement?
  • How must an employer substantiate claims?
  • How should an employer report QSEHRA coverage on federal W-2 forms?

Of particular interest, the Notice provides the following guidance:

  • An employer that provided a QSEHRA before the release of Notice 2017-67 and that had not previously furnished a written notice to employees describing the employer’s QSEHRA program (the law requires the employer provide such a notice), must furnish the written notice no later than Feb. 19, 2018 to avoid penalty.
  • Although not subject to certain other group health plan requirements, a QSEHRA is a self-insured health plan for purposes of paying the ACA’s Patient-Centered Outcomes Research Institute (PCORI) fee, due each July 31 by filing IRS Form 720 (the PCORI fee applies for plan years ending before Oct. 1, 2019).
  • A QSEHRA that provides first dollar coverage reimbursement for out-of-pocket medical expenses other than preventive care will cause an individual to lose eligibility to contribute to a health savings account (HSA), but a QSEHRA that only reimburses premiums for health insurance and/or out-of-pocket expenses for non-HSA-disqualifying benefits (e.g., dental, vision or preventive care), will not affect HSA eligibility.
  • The Notice reminds QSEHRA sponsors that they must obtain an attestation from covered employees that they are enrolled in at least minimum essential coverage, as defined by the ACA. The notice includes a model attestation, which will be welcome help for QSEHRA sponsors.

Any employer establishing a QSEHRA should review the Q&A to assure it understands all of its obligations and the administrative requirements it must follow.

If you have any questions about QSEHRAs or rules involving administering QSEHRAs, please contact your Lockton representative for more information.

Lisa Carlson, JD
Lockton Compliance Services

Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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