Can I Offer A QSEHRA To Employees In Different States?

Whether you’re running a traditional in-office business or managing employees across various state lines, offering comprehensive health benefits can be an uphill battle for small employers — especially when plan options, healthcare costs, and insurance regulations vary by region.

Luckily, the qualified small employer health reimbursement arrangement (QSEHRA) offers a simple and cost-effective way for employers to provide tax-free healthcare reimbursements to all their W-2 employees, regardless of location, and without the need for multi-state group plans.

In this post, we’ll explore how the QSEHRA works for employers with workers in different states. We’ll also review other options available to you if you need a health benefit with even greater flexibility.

In this blog post, you’ll learn:

• How the QSEHRA allows small businesses to offer tax-free health benefits to employees across multiple states.
• What federal laws and IRS guidelines apply when setting QSEHRA allowance amounts.
• How the ICHRA compares to the QSEHRA and when it might be a better fit for employers with multi-state teams.

What is a QSEHRA?

The QSEHRA is a stand-alone HRA for small organizations with fewer than 50 full-time equivalent employees (FTEs). It doesn’t work alongside a group or ancillary health insurance plan. With this type of benefit, you can reimburse your employees tax-free for individual health plan premiums and qualified out-of-pocket costs.

The QSEHRA allows you to choose how much money you want to contribute toward your employees’ monthly medical expenses. After employees submit proof of an eligible expense, you reimburse them up to their allowance amount, tax-free. Due to its flexibility and cost predictability, the QSEHRA is a popular choice for small employers seeking a practical, long-term alternative to traditional group health insurance.

Below are some key features of the QSEHRA:

• While the QSEHRA has no minimum employee contribution caps, the IRS does set annual maximum limits. Once you determine your monthly allowance, your staff can’t exceed it.
• You can determine whether your QSEHRA will only reimburse health insurance premiums or both premiums and other qualified medical expenses.
• You must offer the QSEHRA on the same terms to all your W-2 full-time employees. Part-time workers can also participate if you design the benefit to allow them, and they receive the same allowance amount as your full-time staff members.
• Employees can choose their own individual health plan. But to participate in the QSEHRA, they must have a health insurance policy that provides minimum essential coverage (MEC).
• QSEHRA reimbursement amounts are exempt from payroll taxes for employers and employees. They’re also free from income taxes for employees.

Can I offer QSEHRA to employees in different states?

Yes! One of the best features of the QSEHRA is its ability to meet the healthcare needs of all your employees, regardless of their location. Group health plans typically support workers in only one specific area. However, the QSEHRA allows employees to choose individual health plans from insurance providers in their area that best meet their needs.

When you offer your staff a QSEHRA benefit, they can shop for an individual plan that provides MEC on the individual market. Depending on their location, they can enroll in coverage on the federal Health Insurance Marketplace, their state-based exchange, or work directly with an insurer or an insurance broker.

Once enrolled, you simply reimburse them for their individual health insurance premiums and other out-of-pocket medical costs, reducing the administrative burden of working with a group health plan carrier.

Whether you have a fully remote workforce, a hybrid company, or a multi-state team, the QSEHRA enables all your employees to access the best coverage and healthcare services available through their local network providers.

Can I offer various QSEHRA allowances to employees in different states?

Unfortunately, no. According to the IRS, you can only vary employee QSEHRA allowances by age, family size, or family status. If you’re administering your QSEHRA with PeopleKeep by Remodel Health, only family size and status options are available. But in all situations, you can’t vary QSEHRA contributions by specific location or state.

For example, suppose you run a remote business and want to provide your employees in Vermont with a higher QSEHRA allowance, as their monthly premiums for a benchmark silver health plan are the most expensive in the country ($1,277 per month in 2025)¹. In this case, IRS guidelines prohibit you from giving your Vermont workers any more allowance than your employees in other states. However, there is an HRA that would allow you to do so.

The ICHRA is another stand-alone HRA that works similarly to the QSHERA. For example, it can reimburse employees for individual health insurance premiums and out-of-pocket medical expenses. However, it has greater flexibility and customization options.

Most notably, you can customize this health benefit by offering different allowances and eligibility rules to your workers based on 11 employee classes, including geographic location. You can use states, insurance rating areas, or multi-state regions to determine your allowance amount for location-based classes.

However, if you offer an ICHRA with PeopleKeep by Remodel Health, we only support the state-based geographic class. If you need to customize allowances by rating area, you might want to consider Remodel Health’s ICHRA+ solution.

Below are more ways the ICHRA differs from the QSEHRA:

• The ICHRA is for businesses and industries of all sizes and budgets. It also has no minimum or maximum allowance limits.
• In addition to geographic location, you can vary contributions and eligibility using other employee classes, such as full-time, part-time, and seasonal workers.
• Employees must have a qualified individual health insurance plan that meets MEC to participate in the benefit.
  • Eligible health coverage includes ACA-compliant individual health policies or student health plans, Medicare Parts A and B together or Medicare Part C, or a catastrophic policy (if eligible).
• You can offer both a traditional group health insurance plan and an ICHRA at the same time. But you can’t give your staff the choice between the two healthcare options.
  • For instance, you can offer a group health plan to your employees in the state where your physical office resides. Then, you can offer an ICHRA to your remote workers who reside in another state, enabling them to select their preferred health insurance policy.
  • You can also offer group ancillary coverage, like dental or vision insurance, to employees with an ICHRA. Federal regulations don’t allow this for a QSEHRA.
• Suppose your small business eventually grows to the size of an applicable large employer (ALE). In that case, you’ll be subject to the employer mandate under the Affordable Care Act (ACA) and no longer be eligible for the QSEHRA. However, you can switch to an ICHRA and satisfy the mandate as long as your benefit allowance meets affordability standards.

Conclusion

A QSEHRA gives small business owners the flexibility to offer customized health benefits that work for employees in any location. However, if your company grows and you want to vary allowances by location, an ICHRA may be a better fit. No matter which one you choose, both solutions allow your team to select individual health insurance that meets their local needs, while you control costs and simplify employee benefits administration.

To learn more about whether offering a QSEHRA or an ICHRA is right for your business, contact PeopleKeep today!

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