The qualified small employer health reimbursement arrangement (QSEHRA), also known as a small business HRA, is a company-funded, tax-free health benefit used to reimburse employees for personal health care expenses.
Small businesses often use the 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 the QSEHRA and point you to other resources to help you learn more about this important new benefit.
How the QSEHRA works
With a QSEHRA, businesses 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 2019, you can offer up to $5,150 annually for self-only employees and $10,450 for employees with a family.
- Step 2: Employees make purchases. With their own money, employees buy the health care 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 business 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 and operates as an excepted benefit under the Affordable Care Act (ACA).
QSEHRA eligibility requirements for businesses
By definition, the QSEHRA is a reimbursement benefit for “qualified small employers.” To offer the QSEHRA, a business must:
- have fewer than 50 full-time employees, and
- not offer a group insurance benefit, including health, dental, or vision.
Businesses that don’t meet these requirements can’t offer a QSEHRA until they make changes, such as dropping group health insurance coverage.
QSEHRA eligibility requirements for employees
A company must offer the QSEHRA to all full-time W-2 employees. Businesses can choose to include part-time employees, too, but the company must offer the benefit to part-time employees on the same basis as 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 business, 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:
- Where did the QSEHRA come from?
- How does the QSEHRA work?
- How do businesses set up a QSEHRA?
- How do businesses administer a QSEHRA?
- How do other health benefits compare with a QSEHRA?
- Can business owners participate in the QSEHRA?
- How can my business budget with the QSEHRA?
If you still have questions, please comment below!