Compliance Check: Qualified Small Employer HRAs - IRS Notice 2017-67

Written by benefitexpress | November 9, 2017

As a benefits pro, you're an invaluable resource for your employees and clients. But what do you do when even you don't have the answers? Compliance expert Larry Grudzien is here to help.

On October 31, 2017, The Internal Revenue Service (IRS) issued Notice 2017-67, which contained guidance on the requirements for providing a qualified small employer health reimbursement arrangement (QSEHRA), the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees. The guidance covers eligible employers and employees, the “same terms” requirement, the statutory dollar limits, written notice requirement, the minimum essential coverage (MEC) requirement, reimbursements, reporting, and coordination with the premium tax credit and health saving account (HSA) requirements. The guidance applies for plan years beginning on and after November 20, 2017.

The following explanation reviews the general requirements for providing a QSEHRA under Notice 2017-67. 

  1. A QSEHRA is not a group health plan, and as a result, is not subject to the group health plan requirements that apply under the Internal Revenue Code (Code), Employee Retirement Income Security Act (ERISA) and, with one exception, the Public Health Service Act (PHS Act).
  2. Payments from a QSEHRA to reimburse an eligible employee’s medical expenses are not includible in the employee’s gross income if the employee has coverage that provides MEC. Types of coverages that qualify are listed in Appendix A.
  3. For this purpose, “medical expenses” means expenses for medical care, as defined in Code section 213(d) (which includes premiums for other health coverage, such as individual health insurance policies).
  4. A QSEHRA is an arrangement that meets the following criteria:
    1. The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement
    2. The arrangement provides, after the eligible employee provides proof of coverage, for the payment or reimbursement of the medical expenses incurred by the employee or the employee's family members (in accordance with the terms of the arrangement)
    3. The amount of payments and reimbursements described in paragraph (b) of this section for any year does not exceed $4,950 for 2017; $5,050 for 2018; and for an arrangement that also provides for payments or reimbursements of medical expenses of the eligible employee’s family members (family coverage) does not exceed $10,000 for 2017; and $10,250 for 2018
    4. The arrangement is generally provided on the same terms (the “same terms requirement”) to all eligible employees of the eligible employer.
  5. To be an eligible employer that may provide a QSEHRA, the employer must not be an applicable large employer (“ALE”), and must not offer a group health plan to any of its employees.

For a more detailed examination of the full notice, you can download the explanation here.


Lawrence (Larry) Grudzien, JD, LLM is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits, and executive compensation areas. He has more than 35 years' experience in employee benefit law. He can be found on his website, or email him at larry@larrygrudzien.com.

Topics: HIPAA