The QSEHRA vs. the HRA: What's the difference?

Healthcare costs are rising, making it difficult for small business owners to afford traditional group health plans. Employers are searching for cost-effective ways to provide healthcare benefits to their employees. Health reimbursement arrangements (HRAs) are an excellent solution for affordable coverage.

For those unfamiliar with HRAs and personalized health benefits, the endless acronyms are often confusing. This is especially true when considering different types of HRAs, such as the qualified small employer HRA (QSEHRA).

In this article, we'll define the HRA and the QSEHRA, explore their relationship, and learn about other types of HRAs.

Takeaways from this blog post:

• Health reimbursement arrangements (HRAs) allow employers to reimburse employees for health insurance premiums and other eligible expenses.
• The qualified small employer HRA (QSEHRA) is a type of HRA for small businesses with fewer than 50 full-time equivalent employees.
• There are various types of HRAs available, including the group coverage HRA (GCHRA), which works alongside group health insurance.

What is the HRA?

An HRA is a simpler and cheaper alternative to traditional group coverage. It's an IRS-approved, employer-funded health benefit that does not have rate hikes or participation requirements. With an HRA, employers can reimburse employees for their healthcare expenses, potentially including individual health insurance premiums, out-of-pocket medical expenses, or a combination of the two. Employers set a monthly allowance using pre-tax dollars, and employees can use their allowance on any qualified medical expense they choose.

Examples of eligible health expenses include:

• Doctor's visits
• Medical bills
• Emergency health services
• Dental and vision expenses
• Chiropractic care
• Over-the-counter medication
• Birth control pills

Along with providing flexibility for employers, HRAs offer flexibility for employees. They can choose the healthcare plan that best suits their personal health, budget, and family situation. Plus, if employees have a policy that provides minimum essential coverage (MEC), such as a plan purchased on the Health Insurance Marketplace, they also receive tax-free reimbursements.

The IRS allows businesses to offer several different types of HRAs. While they all have the same basic structure, they differ in important ways.

The key differences between HRAs include:

• Which businesses can offer them
• Which employees can participate
• Whether businesses can offer the HRA alongside group health insurance
• How much tax-free money businesses can offer employees

What is the QSEHRA?

The QSEHRA is a type of HRA that Congress created for small businesses with fewer than 50 full-time equivalent employees (FTEs). Like other HRAs, it's an employer-funded employee benefit that provides tax-free reimbursements for qualified medical expenses. This includes monthly premiums for health insurance coverage. However, the QSEHRA comes with maximum annual contribution limits. This means eligible employers can only offer their employees up to a specific amount of tax-free money through the benefit.

The QSEHRA is automatically available to all full-time W-2 employees. Employers can choose to extend eligibility to other types of employees, such as part-time employees or seasonal employees. If they choose to do so, they must offer them the same allowance amounts to all eligible employees.

What other types of HRAs are there?

The QSEHRA is just one HRA option. Let's review some other common types of HRAs and see how they compare.

ICHRA

The individual coverage HRA (ICHRA) is available to businesses of all sizes. Like the QSEHRA, the ICHRA reimburses employees on a tax-free basis for their individual health insurance premiums and other qualifying medical expenses. However, the ICHRA doesn't have reimbursement limits. You can offer as much or as little as you choose.

For organizations with 50 or more FTEs, known as applicable large employers (ALEs), an ICHRA is a great solution for meeting the Affordable Care Act's employer mandate. You can choose to offer your ICHRA as a stand-alone benefit to all your employees or as a separate benefit for employees who don't qualify for your group health insurance policy. This can help you meet the requirements of the mandate, whether it's for remote employees in other states or part-time employees.

The ICHRA offers more customization options than the QSEHRA, which allows employers to meet the diverse needs of their teams with ease. By categorizing your workforce into different classes of employees, you can offer different benefits and allowances based on job-based criteria.

For example, you can use employee classes to provide different allowances to full-time employees and part-time employees. Or offer an ICHRA exclusively to salaried employees or hourly employees. You can also differ allowances based on your employees’ age and family status.

GCHRA

While ICHRAs and QSEHRAs reimburse employees for health plan coverage, group coverage HRAs (GCHRAs) do the opposite. A GCHRA, also known as an integrated HRA, works alongside a traditional group health plan, such as a high deductible health plan (HDHP). This option allows businesses to supplement their group health insurance policy with an allowance amount. Employer contributions are often equal to the plan's deductible.

A GCHRA only requires employers to pay for the eligible medical expenses their employees incur, unlike a pre-funded health savings account (HSA). With a GHCRA, you always know where your benefit money goes, and any unused allowance goes back to the company.

EBHRA

The excepted benefit HRA (EBHRA) is similar to the GCHRA. Employers can use it along with a traditional group health plan to help with additional healthcare costs. Organizations of any size can offer an EBHRA if they have a group health plan. While you must offer employees a group plan for them to participate in an EBHRA, they don’t have to enroll in the policy.

Under the ACA, "excepted benefits" are those not covered by traditional health plans.

Excepted benefits include:

• Non-health coverage
  • Accident-only coverage
  • Disability insurance
  • Workers compensation insurance
• Limited health benefits
  • Dental coverage
  • Vision coverage
  • Long-term care benefits such as a nursing home
  • Short-term, limited-duration insurance (STLDI)
• Specific disease or illness coverage
  • Cancer insurance
  • Hospital Indemnity
• Supplemental health benefits
  • Cost sharing such as copays, deductibles, and other health care expenses not covered by a primary plan

HRA Comparison Chart

This chart breaks down some of the biggest differences between each HRA.

Conclusion

If traditional group health insurance is out of your price range, you can offer your employees health coverage through an HRA. With this type of health benefit, you can reimburse your workers for their health insurance premiums and other eligible medical expenses.

HRAs offer cost control, customization, and flexibility for employers. The QSEHRA is just one type of HRA. Whether it's the right choice for you depends on several factors, including your business size, your employees' needs, and the maximum allowance you'd like to offer each employee.

This blog article was originally published on August 12, 2019. It was last updated on December 27, 2023.