The IRS is extending the period for an employer to furnish an initial written notice to its eligible employees regarding a qualified small employer health reimbursement arrangement (QSEHRA). The period is extended until no earlier than 90-days after the IRS issues guidance with respect to the contents of such a notice. Employers that provide written notice earlier may rely on a reasonable good faith interpretation of Code Sec. 9831(d)(4).
Under changes implemented by the 21st Century Cures Act, an eligible employer (generally an employer with fewer than 50 fulltime employees, including full-time equivalent employees, that does not offer a group health plan to any of its employees) may provide a QSEHRA to its eligible employees. Under a QSEHRA, an employer may pay or reimburse the medical expenses of its employees, including expenses for premiums for individual health insurance policies, without running afoul of the market reforms or having to integrate coverage with an employer group health plan.
One of the requirements is that the employer furnish a written notice to its eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided (or, in the case of an employee who is not eligible to participate in the arrangement as of the beginning of such year, the date on which such employee is first so eligible). The written notice must include:
1. A statement of the amount that would be the eligible employee’s permitted benefit under the arrangement for the year;
2. A statement that the eligible employee should provide the information described in clause (1) to any health insurance exchange to which the employee applies for advance payment of the premium tax credit; and
3. A statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment for that month and reimbursements under the arrangement may be includible in gross income.
A penalty applies for failing to timely furnish eligible employees with the required written QSEHRA notice. Transition relief was provided in the Cures Act so that an eligible employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 will not be treated as failing to timely furnish the initial written notice if the notice is furnished to its eligible employees no later than 90 days after the enactment of the Cures Act. The 90th day after the enactment of the Cures Act is March 13, 2017.
The IRS recognizes that some employers may find it difficult to comply with the written notice requirement absent additional guidance concerning the contents of the notice, and the IRS intends to issue that guidance in the near future. Meanwhile, an eligible employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 is not required to furnish the initial written notice to those employees until after further guidance has been issued. That further guidance will specify a deadline for providing the initial written notice that is no earlier than 90 days following the issuance of that guidance. No penalties will be imposed for failure to provide the initial written notice before the extended deadline specified in that guidance.
Comment: Congress intended QSEHRAs as a means by which small employers could avoid the premium reimbursement plan ban imposed by the Affordable Care Act (ACA) market reforms. To the extent the ACA is repealed, there is some risk that QSEHRAs may end up being a cure without a disease. However, no one is sure when and how the ACA will be repealed. Furthermore, even if the ACA taxes are repealed in reconciliation as the House Republican leadership hopes, the market reforms for which QSEHRAs are an escape are not repealable without 60 votes in the Senate. So QSEHRAs do offer stability for employers that prefer to reimburse employees for their individual coverage.
SOURCE: Notice 2017-20, I.R.B. 2017-11, March 13, 2017.
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