By Carol Potaczek
Employers offering plans that provide only excepted benefits should be eligible to establish Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), according to the Employers Council on Flexible Compensation (ECFC). The ECFC recently sent a letter to the IRS that included comments on IRS Notice 2017-67, which contained guidance on QSEHRAs, and which advised that a group health plan includes a plan providing only excepted benefits described in Code Sec. 9831(c).
In order to establish a QSEHRA, an employer must not be an applicable large employer and must not offer a group health plan to any of its employees, as per Internal Revenue Code Sec. 9831(d)(3)(B). The ECFC believes that existing rules proposed in Notice 2017-67 that would make an employer ineligible to offer a QSEHRA by virtue of the fact that it provides certain types of health coverage are needlessly broad and potentially harmful to small employers.
Excepted benefits. The ECFC states that the IRS has the authority to interpret Code Sec. 9831(d)(3)(B) as stating that an employer offering a plan consisting only of excepted benefits is eligible to offer a QSEHRA. The ECFC theorizes that strict application of the broad definition of "group health plan" in Code Sec. 5000(b) would lead to perverse results, that were not intended by Congress. According to the ECFC, the prohibition on employer-provided health coverage was meant to be a way to ensure that an employer did not offer major medical coverage to some employees via a group plan, while at the same time letting high-risk employees purchase their coverage on the individual market, which would drive up market costs. Coverage for excepted benefits presents no such risk, says the ECFC.
HSA and FSA carryover amounts. Counterproductive to policies behind consumer-directed health accounts, the ECFC contends, is an IRS provision in Notice 2017-67 that states employers would not be eligible to offer QSEHRAs if they provide current employees with access to amounts accumulated in a health reimbursement arrangement (HRAs) in a previous year or carryover amounts in flexible spending arrangements (FSAs). HRAs and FSAs are intended to make individuals better consumers of health care dollars, the ECFC points out, and the above provision in Notice 2017-67 would instead encourage employees to engage in unnecessary health care spending before a suspension occurs. A small employer who offers an FSA or HRA before a QSEHRA provision was available should not have employees lose access to accumulated health care funds, the ECFC recommends.
Proof of MEC. ECFC also states in its letter that it is concerned about the administrative burden of providing proof of minimum essential coverage (MEC) under Code Sec. 9831(d)(2)(B)(ii), the details of which are provided in Notice 2017-56. According the Notice, proof must consist of either (1) a document from a third party showing that an employee has coverage, plus attestation by that employee that the coverage is MEC, or (2) attestation by the employee that they have coverage that is MEC, along with the date coverage began and the name of the coverage provider. Furthermore, the employee must attest, at each request for reimbursement, that the individual whose expense is being reimbursed continues to have coverage that is MEC. The ECFC is suggesting that attestation alone should be sufficient for QSEHRA reimbursements.
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