On February 27, 2017, the IRS issued Notice 2017-20, which extends the deadline by which employers must furnish eligible employees with an initial written notice regarding qualified small employer health reimbursement arrangements (QSEHRAs), which were made available under the 21st Century Cures Act (Cures Act).

Enacted in December 2016, the Cures Act allows small employers to provide QSEHRAs to their eligible employees. Under a QSEHRA, payments or reimbursements generally can be made to eligible employees for medical care expenses (under Section 213(d) of the Internal Revenue Code (Code) and including expenses for individual health insurance policy premiums) incurred by the employee or the employee's family members (26 U.S.C. § 9831(d); 26 U.S.C. § 213(d)). (See Legal Updates, Legislation Addresses Mental Health Parity, Eating Disorders, HIPAA, and HRAs for Small Employers and Rules for QSEHRAs, EPPs, and HRAs at Issue in Latest FAQ Guidance; see also Practice Note, Defined Contribution Health Plans: Overview.)

Eligible employers under the QSEHRA rules generally are employers:

QSEHRAs are not treated as group health plans.

Employers must provide written notice to eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided. Alternatively, for employees who are not eligible to participate in a QSEHRA as of the beginning of the year, the notice must be provided on the date the employee is first eligible.

The initial notice must include statements:

The Code imposes a penalty for failures to timely provide QSEHRA initial written notices to employees. These penalties generally apply for years beginning after December 31, 2016. For years beginning in 2017, an employer is not treated as failing to timely furnish the QSEHRA initial written notice if the notice is provided to eligible employees no later than 90 days after the Cures Act's enactment date (that is, by March 13, 2017).

The IRS acknowledged that employers may have difficulty satisfying the QSEHRA initial notice requirement without additional implementing guidance addressing the notice's content. The IRS indicated in Notice 2017-20 that:

Under the transition relief, an employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 need not provide the QSEHRA initial notice to the employees until after the IRS issues further implementing guidance. That guidance will specify a deadline for providing the QSEHRA initial notice that is "no earlier than 90 days" following the guidance's issuance. No penalties will be imposed on an employer that does not provide the QSEHRA initial notice before the extended deadline specified in the guidance (26 U.S.C. § 6652(o)).

However, employers that provide the QSEHRA notice to eligible employees before further guidance is issued may rely on a reasonable good faith interpretation of the Cures Act to determine the notice's content.