QSEHRA: IRS Guidance and Request for Comments

The IRS issued Notice 2017-67 to provide guidance on Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The guidance goes into effect November 20, 2017, but is not the final IRS regulation regarding QSEHRAs. The IRS has requested comments no later than January 19, 2018. Alegeus and our industry partners, including the Employers Council on Flexible Compensation (ECFC), will provide comments to the IRS.

In December 2016, QSEHRAs were established as part of the 21st Century Cures Act, in response to provisions in the Affordable Care Act (ACA) that limited small employers ability to provide health reimbursement arrangements (HRAs). QSEHRAs allow small employers to reimburse employees for qualified medical expenses, including premiums for health insurance policies.

Read more: HRA Revisions Under the 21st Century Cure Act Give Small Businesses Greater Flexibility to Provide Healthcare Benefits

Two particular areas that the industry had requested further guidance on from the IRS were what defines an eligible employer and how a QSEHRA interacts with HSAs. Below is an outline of those points of interest included in the notice:

Eligible employers

Employers that offer any group health plans are not eligible to offer a QSEHRA. The industry, through the ECFC, had recommended that the IRS allow employers that offered only a vision or dental benefit to offer a QSEHRA. The IRS did not take that position in this notice. Therefore, group coverage, including FSA, HRA, vision, dental, LPFSA would disqualify an employer and members of its controlled group from offering a QSEHRA. Since this is not the final regulation, there is still time to address this in the next round of comments to the IRS.

Interaction of QSEHRA and HSAs

  • Participation in a QSEHRA that reimburses general medical expenses, including cost sharing, cancels an individual’s HSA eligibility
  • Participation in a QSEHRA that only reimburses health insurance premiums does not cancel an individual’s HSA eligibility
  • Participation in a QSEHRA that only reimburses health insurance premiums and expenses that qualify as “permitted insurance” (e.g., hospital indemnity insurance, accident insurance, specified disease or illness insurance, etc.) or “disregarded coverage” (e.g., dental, vision, and preventive care benefits) does not cancel an individual’s HSA eligibility
  • If an employer terminates its group health plan during the calendar year and thereafter provides a QSEHRA, a high deductible health plan (HDHP) later purchased as individual coverage by an employee may take into account, for purposes of the HDHP’s deductible, the unreimbursed medical expenses incurred by the employee while covered under the group health plan before termination

Other topics covered in the notice

  • How the statutory dollar limits on reimbursements from the QSEHRA operate
  • The written notice requirements for QSEHRAs
  • Operation of reimbursements from a QSEHRA
  • Tax reporting requirements for payments and reimbursements from a QSEHRA
  • Interaction between ACA premium tax credits and QSEHRAs
  • Consequences of failure to meet the requirement to be a QSEHRA
  • Operation of QSEHRA prior to the effective date of the guidance

HRA Executive Order (No. 13813)

The notice also references the October 12th Executive Order that directed the Treasury (IRS), Department of Labor (DOL) and Department of Health and Human Services (HHS) to “consider revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of health reimbursement arrangements (HRAs), expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage.”

Read more: President Trump Signs Executive Order Intended to Expand HRAs and Increase Healthcare Choice and Access

The notice states “The guidance provided in this notice addresses each of those objectives. The Treasury Department (Treasury) and the Internal Revenue Service (IRS) anticipate that the Departments will issue additional guidance in the future in response to Executive Order 13813.”

Learn more. Join Alegeus on November 16, 2017 for a webinar that examines how your business can benefit from the Executive Order and expanded HRA opportunity. You will hear from leading industry experts, Chris Condeluci, Principal at CC Law & Policy, and John Young, SVP of Consumerism & Strategy with Alegeus.

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