Small businesses have now had one year to explore, offer, and experiment with the qualified small employer health reimbursement arrangement (QSEHRA), a new benefit created by Congress in December 2016.
With the QSEHRA, businesses offer employees a monthly allowance. Employees then choose and pay for health care, including insurance policies. Finally, the business reimburses them up to their allowance amount.
Hundreds of small businesses offered a QSEHRA last year, according to The QSEHRA: Annual Report 2018, a study conducted by PeopleKeep and released earlier this month.
The following is an excerpt from the Annual Report, revealing the top five takeaways from the first year of QSEHRA use. To learn more, download the full report here for free.
1. Small businesses used the QSEHRA to better control their benefits budget.
There are many reasons small businesses choose to offer personalized health benefits like the QSEHRA, but one of the biggest reasons is cost.
Small businesses that offered a group health insurance policy spent an average $454.67 per employee per month for single coverage and an average $900.08 per employee per month for family coverage. Those businesses that offered a QSEHRA spent less.
These businesses committed to paying up to an average $280.20 per month per self-only employee and $476.56 per month per employee with a family through a QSEHRA. That’s a cost difference of 38 percent and 47 percent, respectively, compared to group.
This suggests that businesses using the QSEHRA do so to have greater control over their budget, which often doesn’t stretch to the demands of a group policy.
2. Employees received significant—and in many cases, maximum—value from the QSEHRA.
In 2017, small businesses offered average monthly allowances of $280.20 for self-only employees and $476.56 for employees with a family. Though not everyone eligible for a QSEHRA used it, those who did collected an average of 77 percent of their total allowance (79 percent for self-only employees and 77 percent for employees with a family).
What’s more, more than half of eligible employees who used their QSEHRA allowance in 2017 used all of it. Fifty-three percent of self-only employees collected their full allowance. Fifty-two percent of employees with a family did the same.
3. Employees bought policies with better coverage when they had higher allowances.
Employees using a QSEHRA can have any number of individual insurance premiums reimbursed. Roughly 41 percent of self-only employees and 39 percent of employees with a family submitted at least one premium for reimbursement.
However, there is a correlation between monthly allowances and premium submission. Nearly half of self-only employees who received between $301 and $412.50 a month submitted at least one premium for reimbursement, as compared to just 25 percent of self-only employees who received $100 or less. Similarly, 57 percent of employees with a family who received between $701 and $833.33 a month submitted a premium, while just 20 percent who received $100 or less did the same.
Employees were also more likely to increase their premium spending as their allowance increased. The average total premium submitted for self-only employees was just $190.19 for employees receiving $100 or less a month, but increased to $419.65 for employees receiving between $301 and $412.50 a month. For employees with a family, average spending increased from $454.93 for those receiving $100 or less to $1,047.52 for those receiving between $701 and $833.33.
This data suggests employees buy higher-tier insurance policies when they have higher QSEHRA allowances.
4. Employees primarily used the QSEHRA to pay for individual insurance policies.
Although a QSEHRA can reimburse employees for both premium and medical expenses, premiums absorbed much of employees’ allowance in 2017.
Among employees who submitted at least one premium expense, the premium costs claimed an average 84 percent of their allowance. In fact, 61 percent of employees who submitted a premium for reimbursement used their entire allowance on it.
Because insurance policies are often the first resource individuals use to manage medical costs—and because of individual insurance policies’ increasing cost—this usage is expected.
5. Employees used their QSEHRA on behalf of their entire family.
The QSEHRA was designed not only for employees, but also for their families. Besides submitting family premiums, employees can also submit out-of-pocket, nonpremium expenses on their families’ behalf.
And the data suggests they do. Employees with a family were more likely to submit nonpremium expenses for reimbursement than were self-only employees. Their expenses were also greater. Of those who submitted a nonpremium expense, the average total sum of expenses reached $1,549.14 for employees with a family, compared to just $787.33 for self-only employees.
The average of nonpremium expenses also increased with family size. Employees with just one dependent submitted nonpremium expenses totaling $1,312.89, compared with an average $1,633.36 for employees with two dependents, and an average $1,800.59 for employees with three dependents. The trend continued all the way up to $5,822.44 for employees with eight dependents.
The first year of the QSEHRA was largely a success, with cost savings for small businesses and increased personalization for employees and their families.