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QSE-HRA Guidance: Eligibility, Terms, Limits and Notice Requirement (Part 1 of 3)

In late 2017, the IRS delivered guidance on the Qualified Small Employer Health Reimbursement Arrangement (QSE-HRA). The QSE-HRA is a new HRA plan design allowable only since December 2016. In early 2017, the IRS suspended the written notice requirement for 2017 plan years until further guidance could be issued (which we covered here).

When the guidance arrived, it delivered much more than the awaited information on the notice requirement along with a statement anticipating further guidance in response to Executive Order 13813.

In the weeks since Notice 2017-67 was issued, we have worked through its content to determine the information most useful to our clients as well as to those employers considering installing a QSE-HRA for the first time. Since it is a somewhat larger volume of text, we present the guidance in three parts:

Eligibility, Terms, Limits and Notice Requirement (below)
Coverage, Reimbursement, and Marketplace Coordination
Failure to satisfy, HSA interaction, and Effective date

Part I: Eligibility, Terms, Limits and Notice Requirement

A. Eligible Employer

An eligible employer is one that:

Has fewer than 50 full-time employees;
Offers no group health plan to active employees, including:
- Another HRA,
- Any Health Flexible Spending Arrangement (FSA), or
- A plan offering only “excepted benefits,” such as vision or dental coverage.
Does not allow employees access to HRA or FSA carryover amounts from previous years once the QSE-HRA is in place.

Also:

An eligible employer may provide employees with information about the Health Insurance Marketplace (Marketplace) or Premium Tax Credit (PTC) but does not endorse a particular policy, form, or issuer of individual health insurance.

If an employer is considered eligible to provide a QSE-HRA on January 1 of the current plan year but becomes an applicable large employer (ALE) with 50 or more full-time employees during the plan year, the employer:

May continue the current QSE-HRA to the end of the plan year,
Is no longer eligible to provide a QSE-HRA on January 1 of the new plan year,
May offer a run-out period in the new year for employees to be reimbursed from the QSE-HRA for eligible expenses incurred in the previous year.

B. Eligible Employees

An eligible employee is any active employee of a company, with the following allowable exclusions:

Those who have not completed 90 days of service with the employer,
Employees under the age of 25 years at the start of the plan year,
Part-time employees (generally, less than 35 hours weekly),
Seasonal employees (generally, less than 25 hours weekly or less than 7 months of the year),
Employees under a collective bargaining agreement that includes health benefits,
Non-resident aliens with no earned income from sources within the United States.

Also:

A QSE-HRA may not be provided for retirees.

C. Same Terms Requirement

QSE-HRA benefits must be provided on the same terms to all eligible employees.

“Same Terms” allows a sole exception dependent on the employee’s choice of individual vs. family coverage, but implementation of this exception is not required.

Employers may choose to include employees that can be excluded, for example, offering coverage at 30 days of employment rather than 90 days, but the QSE-HRA must be provided on the same terms to these employees as it is to all other eligible employees.

Also:

Employers may not offer employees a choice in QSE-HRA coverage options; however, the employer may choose to set limited benefits within a QSE-HRA, such as 1) premium only coverage, 2) cost-sharing expenses that are medical expenses, or 3) certain other defined medical expenses as long as it is on a same terms basis to all employees.

An employer’s defined coverage (per above) may not cause the arrangement to be effectively unavailable to some employees due to facts and circumstances.

An eligible employee may not waive QSE-HRA coverage since it is provided rather than offered by the employer.

D. Statutory Dollar Limits

The 2018 statutory dollar limit for a QSE-HRA is $5,050 for an employee choosing individual coverage and $10,250 for an employee choosing family coverage.

For a short first plan year, the statutory dollar limit will be pro-rated according to the number of months in the short plan year.

When an employee becomes eligible to participate during a plan year, the statutory limit for that employee is similarly pro-rated for the first, shorter participation year.

Also:

QSE-HRAs with a roll-over provision cannot allow the total dollars available to an employee in a plan year to exceed statutory dollar limits for the new plan year.

E. Written Notice Requirement

An employer providing a QSE-HRA must provide written notice to participating employees no later than 90 days before the beginning of each year.

For plan years beginning in 2017 or 2018, the notice requirement is 90 days after written guidance is received from the IRS. That date is now officially February 19, 2018.

For an employee not eligible to participate at the start of the year, written notice must be given no later than the date the employee becomes eligible.

Written Notice must include:

A statement of benefits and amounts for which the employee is eligible. In the case of a newly eligible employee, the method and amount of pro-rating the benefit must be stated.
The date benefits are first available to the employer.
Notice that the employee must report the benefit amount when applying for coverage and PTC on the Marketplace.
A statement that in any month the employee fails to maintain MEC, the employee may be subject to an individual shared responsibility payment* and that any reimbursements from the QSE-HRA for that month will be subject to regular income tax.