When Congress created the qualified small employer health reimbursement arrangement (QSEHRA) in 2016, much of the focus centered on its value to traditional small businesses.
The new benefit, which allows small businesses to reimburse employees tax-free for their medical expenses, was seen as a way for businesses to avoid the costs, complexities, and restrictions of group health insurance.
And all of that is true—today, thousands of small businesses have taken advantage of the QSEHRA to offer health benefits to their employees.
But it isn’t just traditional businesses that have benefited. The QSEHRA was designed for all small groups with fewer than 50 employees, including religious groups.
In practice, the QSEHRA works for churches in the same way it works for other small businesses. There are a few issues unique to religious groups, though, that every church evaluating the QSEHRA should consider.
In this post, we’ll review how the QSEHRA works, why a church may consider it, and the most common things churches experience that could affect how the QSEHRA works for them.
How the QSEHRA works
The QSEHRA is a tax-free health benefit used by small groups like businesses or churches to reimburse employees for health care expenses.
A small group qualifies for the QSEHRA if it:
a) employs fewer than 50 full-time-equivalent (FTE) employees, and
b) won’t offer a group health policy to any of its employees at the time it offers the QSEHRA.
With a QSEHRA, the group offers employees a monthly allowance. Employees then choose and pay for health care, potentially including insurance policies, and the group then reimburses them up to their allowance amount.
All reimbursements through the QSEHRA are free of payroll tax for the group and its employees. Reimbursements can be free of income tax for employees, too, if the employee has minimum essential coverage (MEC).
In 2018, groups can offer up to $10,450 annually for employees with family and $5,150 annually for single employees. This works out to monthly allowance limits of $870.83 for employees with family and $429.17 for single employees.
Why the QSEHRA works well for churches
When it comes to health benefits, churches face many of the same challenges as other small businesses.
First, group health insurance is too expensive for many religious organizations. Group health policies have roughly doubled in cost since 2000, reaching an all-time high of $6,435 per individual and $18,142 per family in 2016.
Second, group health insurance is too complex. Time is precious for many churches—especially those with a small staff—and there are better ways to use that time than administering benefits. Ongoing regulatory changes, annual policy renewals, and the general back-and-forth between a health insurance carrier and the church add up to significant time costs.
Finally, group health insurance is too one-size-fits-all. Most churches employ people who are in a variety of situations, including those who work unpredictable hours, those who receive benefits from a spouse’s company policy, and those who participate in alternatives like health care sharing ministries (see below). A group policy provides limited value to employees in those situations.
Offering a QSEHRA minimizes these problems. With a QSEHRA, the church can control its costs by defining exactly how much it wants to pay toward benefits. The QSEHRA also allows the church to extract itself from the relationship between its employees and their health care providers. Finally, because allowances are available to all full-time (and potentially part-time) employees—and can reimburse a variety of expenses—a QSEHRA provides value to church employees in any circumstance.
There are some things churches should consider before choosing a QSEHRA, though. We’ll now walk through some common concerns churches have about the QSEHRA and explain how the benefit works in these cases.
QSEHRA eligibility for church employees
Many churches have small staffs working variable hours. Because of this, some churches want to provide benefits only to a pastor, for example, while others would like to include employees who may not work full-time. With a QSEHRA, all full-time employees are automatically eligible for the benefit. Part-time employees can be eligible as well, if the church chooses.
This means the church must offer the benefit to all full-time employees. It can’t single out one employee, like a pastor, for the benefit if there are other full-time employees.
Churches don’t have to include part-time employees, but they can. If the church chooses to do this, it must offer the same monthly allowance amounts to part-time employees as it does to full-time employees.
The QSEHRA and premium tax credits
Many people who work for churches qualify for federal premium tax credits. These credits are calculated based on income and insurance costs, and they help many individuals afford coverage.
Church employees with a QSEHRA may still claim these credits, but the law requires them to coordinate the credit with their monthly QSEHRA allowance. Specifically, any premium tax credit must be reduced by the amount of the monthly QSEHRA allowance.
For example, if a church employee is eligible for a $400 premium tax credit but receives the $250 allowance from the church’s QSEHRA, they would be able to use only $150 of the tax credit.
It’s possible that an employee’s tax credit will be reduced to zero by the QSEHRA allowance.
The QSEHRA and health care sharing ministries
Health care sharing ministries, such as Medi-Share or Samaritan Ministries, are an increasingly popular alternative to insurance policies.
These ministries are faith-based groups that allow members to share health costs in exchange for membership fees. The ministries don’t qualify as insurance, but the Affordable Care Act exempts members from the individual mandate.
Because health care sharing ministries aren’t insurance, however, members of a ministry do not have MEC. That means that while the individual participating in a health care sharing ministry and a QSEHRA can receive reimbursements for qualified medical expenses, all their reimbursements will be subject to income tax.
Additionally, employees enrolled in a health care sharing ministry can’t receive reimbursement for ministry membership fees.
Evaluating the QSEHRA for your church
The QSEHRA can be a great option for small churches that want to offer a health benefit to employees. It saves the church time and money while offering value to all employees, regardless of their circumstances.
Nevertheless, there are some circumstances that may change a church’s feelings about the QSEHRA. Churches that want to restrict benefit eligibility, or that have a high number of employees whose premium tax credits would be eliminated by the QSEHRA, may not be happy with the benefit.
And while the QSEHRA provides value to employees who belong to a health care sharing ministry, it does so on a taxable basis.
For churches open to the QSEHRA’s possibilities, though, the benefit provides an alternative to traditional group benefits that is affordable, efficient, and personalized.