The qualified small employer health reimbursement arrangement (QSEHRA) is a company-funded, tax-free health benefit used to reimburse employees for personal healthcare expenses.
Small organizations often use a QSEHRA as an alternative to traditional group health insurance because they can set their own budget and provide a formal health benefit to all employees, regardless of employees’ individual circumstances.
In this post, we’ll go over the basic definition of a QSEHRA and point you to other resources to help you learn more about this important new benefit.
Download the small business guide to health benefits
How a QSEHRA works
With a QSEHRA, organizations offer employees a monthly allowance and employees buy what fits their needs.
Here’s how it works:
- Step 1: The company sets a monthly allowance. This allowance represents the maximum amount of tax-free money the business will pay the employee for health care. In 2021, you can offer up to $5,300 annually for self-only employees and $10,700 for employees with a family.
- Step 2: Employees make purchases. With their own money, employees buy the healthcare products and services they want. This could include individual health insurance, copays, deductibles, and prescription and nonprescription drugs, among other expenses. Employees are free to purchase health insurance either through the annual open enrollment period or, if a new QSEHRA is offered mid-year, during a 60-day special enrollment period (SEP).
- Step 3: Employees submit proof of expenses. After incurring an expense, employees submit proof of their purchase to the company through formal documents, such as a receipt or an explanation of benefits from their insurance company.
- Step 4: The company reviews and reimburses employees. The organization reviews employees’ documentation and, if everything is in order, approves the expense for reimbursement. Reimbursements are paid free of payroll tax and can be free of income tax, too, if the employee has minimum essential coverage.
The benefit is governed by formal QSEHRA plan documents. This process of generating legal documents and keeping them up to date, as well as submitting and reviewing expenses can be handled by an HRA software administrator.
By definition, a QSEHRA is a reimbursement benefit for “qualified small employers.”
To offer a QSEHRA, an organization must meet the following requirements:
- Have fewer than 50 full-time employees
- Not offer a group insurance benefit, including health, dental, or vision.
QSEHRA eligibility requirements for employees
An organization must offer their QSEHRA to all full-time W-2 employees. Employers can choose to include part-time employees, too, but the company must offer the same benefit to part-time employees that it does to full-time employees.
1099 employees aren’t eligible for the QSEHRA.
Where can I learn more about the QSEHRA?
If you’re interested in learning about the QSEHRA for your organization, be sure to check out our many in-depth resources on the benefit.
You can start with our comprehensive QSEHRA education page.
It answers questions like:
- What is a QSEHRA?
- What are the benefits?
- How does a QSEHRA work?
- How does a QSEHRA compare to other HRAs?
- Who can offer a QSEHRA?
- Who can participate in a QSEHRA?
- How to set up a QSEHRA?
- How to manage a QSEHRA?
Conclusion
A QSEHRA is an ideal way for small organizations to offer a quality health benefit to employees. Employers who choose to use an HRA software administrator like PeopleKeep can launch the benefit in under an hour and manage in just minutes per month.
What you need to know about self-administering a QSEHRA
This post was originally published on November 8, 2018. It was last updated December 2, 2020.
