Securing quality health benefits for nonprofits has grown more and more difficult.
Between rising premiums in the group health insurance market and high administrative time costs, many nonprofits are looking for alternatives to these traditional solutions.
One such solution is the qualified small employer health reimbursement arrangement (QSEHRA). Created specifically for small businesses and nonprofits with fewer than 50 employees, the QSEHRA is a new benefit that supports tax-free health care reimbursement.
In this post, we’ll consider the QSEHRA as an option for nonprofits and cover three questions all nonprofits should ask when evaluating the benefit.
What is the QSEHRA?
First, let’s define the QSEHRA.
Created through federal legislation in December 2016, the QSEHRA is a new health reimbursement benefit for businesses with fewer than 50 employees.
With a QSEHRA, the company offers employees a monthly allowance. Employees then choose and pay for health care, potentially including individual insurance policies, and the company reimburses them up to their allowance limit.
All QSEHRA reimbursements are free of payroll tax for the company and its employees. Reimbursements can be free of income tax for employees, too, if the employee has minimum essential coverage (MEC).
1. Would your nonprofit be successful with group health insurance?
The first question a nonprofit should ask when evaluating the QSEHRA is whether a traditional solution like group health insurance could meet their needs.
While there are many reasons a nonprofit might choose a QSEHRA over group health insurance, most businesses who can offer group health insurance do so. Americans have long considered group health insurance the premier company-sponsored health benefit, and choosing a QSEHRA would require the nonprofit to educate employees about a new and unfamiliar benefit.
If the nonprofit can’t afford group health insurance, or if some other circumstance makes group health a poor fit, the QSEHRA is a great option.
But, if the nonprofit has the budget and employees would have their needs met by group health insurance, a more serious debate should take place before choosing either option.
For more information, see Is group health insurance the best choice for small business?
2. Do your employees qualify for premium tax credits?
Many of the nation’s nonprofit employees qualify for government premium subsidies.
Nonprofits should know IRS Code Section 36B requires employees to coordinate their premium tax credit with any QSEHRA allowances. If an employee is eligible for a premium tax credit, they must reduce the amount of their credit dollar-for-dollar by the amount of the monthly HRA allowance.
For example, an employee with a $500 premium tax credit and a $200 QSEHRA allowance would be left with a premium tax credit of $300 after adjustment.
Because of these requirements, employees may have some or all of their premium tax credit reduced by the QSEHRA. This doesn’t necessarily diminish the QSEHRA’s value, but nonprofits should consider the implications before launching the benefit. Learn how to calculate your premium tax credit with a QSEHRA.
3. Can your nonprofit commit to offering a meaningful monthly allowance for health care?
When evaluating the QSEHRA, a nonprofit should consider how much tax-free money they want to offer employees.
In 2018, a company can offer up to $5,050 a year ($420.83 per month) for single employees and $10,250 a year ($854.16 per month) for employees with a family.
While the QSEHRA has no minimum contribution requirements, the nonprofit should choose an allowance that would be valuable to employees. That amount varies, but PeopleKeep data shows that employees who received at least $100 were more likely to use the benefit and to purchase individual health insurance policies.
Before choosing the QSEHRA, nonprofits should assess their budget and decide whether they can commit the funds necessary to make it meaningful.
After reviewing these three questions, nonprofits should have a good idea of whether the QSEHRA will fit their needs.
Typically, nonprofits that either cannot or don’t want to offer group health benefits find success with the QSEHRA. They can control their benefits budget, provide value to employees regardless of personal circumstances, and remove themselves from the consumer health care relationship.