IRS Issues Guidance for Small Employer HRAs

Published date01 July 2018
Date01 July 2018
IRS Issues Guidance for Small
Employer HRAs
Shirley Dennis-Escofer
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 clarication for any
employer with less than
50 employees that offers or is
contemplating offering
an HRA.
HRAs are arrangements
under which an employer
agrees to reimburse qualied
medical expenses up to a cer-
tain dollar amount per year.
The reimbursement is excluded
from the employees 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 employers 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 signicantly
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 employers
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 IRSs
interpretation of the ACA,
Congress enacted the 21st Cen-
tury Cures Act in late 2016,
creating a new type of HRA.
The new qualied 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 nally 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 benet 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 employees
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22344 117

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