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Health and Welfare

QSEHRA Update – New guidance on required written notices

Eligible employers that offered a Qualified Small Employer Health Reimbursement Arrangement (QSERA) in 2017 should mark February 19, 2018, on their calendars. That date marks the deadline (for 2017 QSEHRA plans and 2018 QSEHRA plans beginning January 1, 2018) by which eligible employers must provide the initial written QSEHRA notice to their eligible employees. Failure to provide the initial written notice will result in a penalty of $50 per employee (up to the maximum of $2,500 per calendar year per eligible employer). On October 31, 2017, the IRS issued Notice 2017-67 which announced the new deadline and provided additional guidance on QSEHRA requirements.

How the new guidance affects NBS Clients

All NBS clients who offered a QSEHRA during 2017 have already received an initial written notice to provide to their eligible employees. NBS prepared that notice based upon a reasonable, good faith interpretation of the Cures Act and as permitted under IRS Notice 2017-20. Currently, NBS is reviewing its QSEHRA notice for compliance with the newly-provided guidance in IRS Notice 2017-67. NBS will revise its initial QSEHRA written notice as necessary and will provide the revised notice to all NBS clients who offer a QSEHRA before the February 19, 2018 deadline. Additionally, NBS will be issuing a series of articles that discuss additional guidance on various aspects of QSEHRAs

Initial Written Notice Contents

Notice 2017-67 contains guidelines on the QSEHRA initial written notice contents and provides an example written notice. Under the notice, the QSEHRA initial written notice must contain the following information:

  1. a statement of the amount of each permitted benefit for which the employee might be eligible;
  2. the date on which the QSEHRA is first provided to the eligible employee;
  3. a statement that the eligible employee must inform any Marketplace to which the employee applies for advance payment of the premium tax credit (APTC) of the amount of the provided benefit;
  4. a statement that the amount of the provided benefit may affect the eligibility for and the amount of the premium tax credit and that the employee should retain the written notice because it may be necessary to calculate the premium tax credit on the employee’s individual income tax return; and
  5. a statement that if the eligible employee does not have minimum essential coverage for any month, then the employee may be liable for an individual shared responsibility payment under Section 5000A of the Affordable Care Act for that month and that reimbursements under the QSEHRA for expenses incurred in that month will be included in the employee’s gross income.

For newly eligible employees whose provided QSEHRA benefit has been prorated, the written notice must also either include the prorated provided benefit amount or state that the amounts are prorated based on months coverage along with the information necessary to calculate the prorated amount.

If the provided QSEHRA benefit varies based on the number of family members covered under the QSEHRA or their ages, then the written notice may include either each available permitted benefit or the permitted benefit for which that employee is eligible.

Side Note: be aware that Notice 2017-67 states that to satisfy the same terms requirement, a QSEHRA provided to two or more eligible employees must provide separate permitted benefits (with separate statutory dollar limits) to each eligible employee without regard to whether the employees are covered under one family policy. Consequently, if Employer provides a QSEHRA with a family permitted benefit of $8,040 and Employees A and B are covered under one family health insurance policy with a $10,000 premium, then Employee A and Employee B are each entitled to a permitted benefit of $8,040. Although, the QSEHRA may not provide duplicative reimbursements of a single medical expense, and the QSEHREA reimbursements will be limited to $10,000 between Employees A and B with respect to the health insurance premium.

In addition to the required information, the initial written notice may contain additional information that does not conflict with the required information. Additionally, eligible employers may electronically furnish the written notice to their eligible employees as long as the employers follow the rules for the use of electronic media.

Notice Requirement History

Internal Revenue Code (IRC) Section 9831(d)(4) requires an eligible employer who provides a QSEHRA to furnish a written notice to its eligible employees at least 90 days before the beginning of the QSEHRA plan year or on the date which an employee is first eligible to participate in the QSEHRA (for employees who were not eligible to participate at the beginning of the plan year). Additionally, IRC Section 6652(o) provides a penalty of $50 per employee up to a maximum of $2,500 for failure to provide the written notice. The 21st Century Cures Act, which initially created QSEHRAs, provided a transition period of 90 days following the enactment of the Act by which eligible employers were to provide the initial written notice.

While the Cures Act outlined the notice requirement, the act failed to provide sufficient details regarding the contents of the notice. Consequently, many eligible employers were confused as to what the notice must contain. Because of such confusion, the IRS issued Notice 2017-20 in February 2017 which provided additional transition relief for eligible employers providing a QSEHRA for a plan year beginning in 2017. Notice 2017-20 stated: (1) that the IRS would issue additional guidance concerning the contents of the QSEHRA written notice; (2) that eligible employers would have not less than 90 days following the issuance of the forthcoming guidance to provide the initial written notice; and (3) that the penalties under IRC Section 6652(o) would not apply before the extended deadline.  The notice also stated that eligible employers that furnished the initial written notice before the issuance of the additional guidance could rely on a reasonable, good faith interpretation of the Cures Act to determine the notice’s contents.

Now, the IRS has issued Notice 2017-67 which affirms that it is the further guidance referenced in Notice 2017-20. Additionally, Notice 2017-67 declares that eligible employers that provide a QSEHRA during 2017 or 2018 must furnish the written notice to their respective eligible employees by the later of February 19, 2018, or 90 days before the first day of the QSEHRA’s plan year. Further, eligible employers who fail to provide the initial written notice by the specified date will be subject to the penalties under IRC Section 6652(o).