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New Guidance for Qualified Small Employer HRAs (QSEHRAs)

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by Christopher Macali on 06 December, 2017 with Add new comment

The 21st Century Cures Act passed last year created Qualified Small Employer HRAs (QSEHRAs) providing a vehicle for small employers (fewer than 50 employees) to reimburse employees' individual insurance premiums and other medical expenses on a pre-tax basis. The law established a number of requirements to qualify as a QSEHRA, including a requirement that no group health plan be offered and that contributions must be equal for all employees, but gaps in the compliance framework of QSEHRAs remained. Many of those gaps were address by the IRS last week in Notice 2017-67. While rhetoric from the executive branch this year has suggested more favorable treatment of HRAs, the new guidance is restrictive and may discourage some employers from adopting a QSEHRA. Here are a few highlights:

  • Other disqualifying group coverage includes dental or vision insurance and Health FSAs.
  • The employer must furnish written notice to each eligible employee at least 90 days before the beginning of each year. (Penalty - $50 per employee) The notice requirement had been delayed for 2017 and 2018 plans until further guidance was provided. Notice for those plans now must be provided by the later of February 19, 2018 or 90 days before the first day of the plan year.
  • Employees receiving reimbursements must be enrolled in a health plan providing Minimum Essential Coverage (MEC).
  • Before a QSEHRA can reimburse an expense for any plan year, the employee must provide proof of coverage. The proof must be provided annually before receiving any reimbursement, and must include proof of coverage for any covered dependents.
  • Additionally, the employee must attest that the employee is covered by a MEC plan for each subsequent reimbursement throughout the plan year.
  • QSEHRA expenses should be substantiated in accordance with the 125 regulations for FSAs.
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Christopher Macali

Christopher Macali

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