Qualified Small Employer Health Reimbursement Account (QSEHRA) is a type of health reimbursement arrangement (HRA), the qualified small employer HRA (QSEHRA) is a health benefit for small businesses with fewer than 50 employees. With a QSEHRA, companies can reimburse employees tax-free for their medical expenses, including personal insurance premiums.
In 2013, IRS Notice 2013-54 issued guidance on the Affordable Care Act that seriously limited businesses’ ability to use health reimbursement arrangements (HRAs) However, Small Group Healthcare Reform was passed and the QSEHRA provisions went into effect January 1, 2017.
The QSEHRA is a company-funded, tax-free health benefit used to reimburse employees for personal health care expenses and / or insurance.
With a QSEHRA, businesses offer employees a monthly allowance. Employees then choose and pay for health care expenses, and/or insurance policies, and the business reimburses them up to their allowance amount.
With the QSEHRA, all reimbursements are free of payroll tax for the business and its employees. Reimbursements can be free of income tax for employees, too, if the employee is covered by a policy providing minimum essential coverage – This enables tax savings for the Employer and Employee/
How it Works:
- Set A Defined Contribution amount – Monthly tax free with no minimum contribution
- Employees purchase product(s) – Employees select from a consortium of products – individual to their specific wants and needs.
- Employees submit Proof – Employees submit invoice or receipts of those purchased service / product(s) to receive the benefit from employer
- Employer – reimburses employees for those expenses. Contributions and deductions can be tax deferred saving both the Employee and Employer money.
Which businesses can offer a QSEHRA?
The QSEHRA was designed specifically for small businesses looking for an alternative to traditional group health insurance.
- employs fewer than 50 full-time-equivalent (FTE) employees, and
- doesn’t offer a group health policy to any of its employees.
Businesses that are interested in the QSEHRA but are currently offering a group policy can cancel it and become eligible.
Who qualifies as eligible employees under a QSEHRA?
When a business offers a QSEHRA, all full-time employees and their families are automatically eligible. The business can opt to include part-time employees in the benefit as well, but they must offer part-time employees the same allowance they offer full-time employees.
Unlike traditional group policies, the QSEHRA provides value to all employees, regardless of their situation.
Employees covered under a spouse’s group policy, for example, can still use QSEHRA funds toward their deductible, copay, and other medical expenses. And employees without MEC can still receive reimbursements for their expenses, though the reimbursements are subject to income tax.
The QSEHRA vs. group health insurance
One of the primary reasons small businesses choose to offer a QSEHRA is cost. They’re often unable to afford traditional group health insurance, so they look for an option that helps them keep control over their budget.
Kaiser Family Foundation data shows that small businesses that offered a group health insurance policy spent an average $455 per employee per month in 2017 for single coverage and $900 per employee per month for family coverage.
Small businesses that offered a QSEHRA, though, committed to an average $297 per month per self-only employee and $445 per month per employee with a family and the QSEHRA provides value outside of insurance with reimbursement features from defined medical expenses.
Employees covered under a QSEHRA also chose their own insurance coverage—something not possible under a group health benefit. Coverage specific to their wants and needs.
While administering the program may seem burdensome, QSEHRA platforms are available to administer the program and reduce the administrative burden of the plans offered increase the value and saving over traditional employer sponsored programs. Programs can include ancillary coverage, such as Dental, Vision, and some supplemental plans.
The QSEHRA vs. health insurance stipends
One way for small businesses to help employees cover health costs is to offer a health insurance stipend, which is simply extra money in an employee’s paycheck. This stipend is the equivalent of grossing up wages—it is a flat amount given to all employees, which they can spend however they choose.
While a health insurance stipend requires no administration, it is an informal solution to a formal problem.
Employees rarely consider the extra cash a “benefit,” and therefore rarely put the funds toward their health needs. Additionally, both businesses and employees are paying a combined 35 percent more in taxes on average than they would with a formal solution like the QSEHRA.
For more information and to determine if a QSEHRA is right for your company, call our team at 800-362-2809. We can develop a platform that will provide real solutions for your employee benefits.