IRS Issues Guidance for Small Employer HRAs

• DOI: http://doi.org/10.1002/jcaf.22344
• Published date: 01 July 2018
• Author: Shirley Dennis‐Escoffier
• Date: 01 July 2018

IRS

IRS Issues Guidance for Small

Employer HRAs

Shirley Dennis-Escoffier

In late 2017, the Internal Reve-

nue Service (IRS) issued impor-

tant guidance on many aspects

of the new health reimburse-

ment arrangement (HRA) for

employers with less than

50 employees. This guidance

covers who are eligible

employers and employees, the

same-terms requirement, the

dollar limits, the requirement

to substantiate health insurance

coverage as well as medical

expenses, the written notice

requirement, and reporting

requirements, in a question and

answer format with numerous

examples. This provides much

needed clarification for any

employer with less than

50 employees that offers or is

contemplating offering

an HRA.

BACKGROUND

HRAs are arrangements

under which an employer

agrees to reimburse qualified

medical expenses up to a cer-

tain dollar amount per year.

The reimbursement is excluded

from the employee’s gross

income and unused amounts

can be rolled over to future

years. The IRS distinguishes

between HRAs that are inte-

grated with other coverage as

part of an employer’s group

health plan and HRAs that are

not integrated (referred to as

stand-alone HRAs). Employer-

sponsored group health plans

are subject to many require-

ments and failure to comply

with these requirements can

result in an excise tax of $100

per day per employee.

The group health plan

requirements were significantly

amended by the Affordable

Care Act (ACA). The IRS

viewed these changes as

requiring an employer who

wanted to use an HRA, to

integrate the HRA with cover-

age under the employer’s

group health plan. In Notice

2013-54, the IRS took the

position that health plans

reimbursing or paying

employee premiums for indi-

vidual coverage through a

stand-alone HRA were subject

to the excise tax for violating

the group health plan rules.

In response to the IRS’s

interpretation of the ACA,

Congress enacted the 21st Cen-

tury Cures Act in late 2016,

creating a new type of HRA.

The new qualified small

employer health reimbursement

arrangement (QSEHRA)

allows an employer with less

than 50 employees to offer a

stand-alone HRA that reim-

burses employees with pre-tax

dollars for the cost of individ-

ual health coverage for plan

years beginning after December

31, 2016. Unfortunately, there

are a large numbers of complex

requirements. In late 2017, the

IRS finally provided compre-

hensive guidance in Notice

2017-67 with the answer to

79 questions on all aspects of

this new HRA effective for

plan years beginning on or

after November 20, 2017.

The general requirements

state that a QSEHRA must be

funded solely by employer con-

tributions and employers must

offer the QSEHRA on the

same terms to all of its

employees. The maximum per-

mitted benefit an employer

may provide to each employee

for 2018 is $5,050 for self-only

coverage and $10,250 for fam-

ily coverage. Payments from a

QSEHRA to an employee are

excluded from the employee’s

© 2018 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22344 117