Late in 2016, as part of the 21st Century Cures Act, Congress had created a program under which certain qualifying small employers could pay directly for medical costs of certain employees (generally private health care insurance) without running afoul of the provisions of the Affordable Care Act that could subject the employer to a $100 per employee per day penalty for offering a health plan that did not comply with the standards imposed under that law.

These programs are referred to as “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRAs) authorized by IRC §9831(d). In Notice 2017-67 the IRS issued a 59-page set of frequently asked questions (FAQs) regarding the operation of such plans to maintain compliance with the requirements of the law.

The questions and answers in the notice are divided into the following topics:

A. Eligible employer

B. Eligible employee

C. Same terms requirement

D. Statutory dollar limits

E. Written notice requirement

F. MEC (minimum essential coverage) requirement

G. Proof of MEC requirement

H. Substantiation requirement

I. Reimbursement of medical expenses

J. Reporting requirement

K. Coordination with PTC (premium tax credit)

L. Failure to satisfy the requirements to be a QSEHRA

M. Interaction with HSA (health savings account) requirements

N. Effective date

The notice provides detailed guidance to qualified employers sponsoring such programs. As the notice explains, to be eligible to offer such a program an employer must meet the following criteria:

To be an eligible employer that may provide a QSEHRA, the employer must not be an applicable large employer (ALE), as defined in section 4980H(c)(2) and the regulations thereunder (and, thus, may not be an employer that, generally, employed at least 50 full-time employees, including full-time equivalent employees, in the prior calendar year), and must not offer a group health plan (as defined in section 5000(b)) to any of its employees.

In October the President issued Executive Order 13813 related to guidance on health reimbursement arrangements. This notice is meant to address the issues raised by that Order in addition to giving guidance under the law. As the Notice provides:

… Executive Order 13813 (82 Fed. Reg. 48385, Oct. 17, 2017), directed the Secretaries of the Treasury, Labor, and Health and Human Services to consider revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of health reimbursement arrangements (HRAs), expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage. The guidance provided in this notice addresses each of those objectives. The Treasury Department (Treasury) and the Internal Revenue Service (IRS) anticipate that the Departments will issue additional guidance in the future in response to Executive Order 13813.

Employers who have adopted or are considering adopting such an arrangement should review this guidance for information on what is and is not permitted under a QSEHRA program. The guidance in this Notice is effective for plan years beginning after November 19, 2017.