What Is a QSEHRA? Here's What You Need To Know
- Employee Benefits
- Article
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6 min. Read
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Last Updated: 08/23/2024
Table of Contents
The health insurance market has changed dramatically for small businesses in recent years due to provisions outlined in the Affordable Care Act (ACA). One health plan option — known as a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) — may be a good option for small employers to reimburse workers for the cost of individual insurance and/or qualified medical expenses on a pretax basis.
In 2024, employers can reimburse workers with individual coverage up to $6,150 in health costs and those with family coverage up to $12,450. Those reimbursements are tax-free to employees if they maintain minimum essential coverage (MEC) while receiving QSEHRA payments.
How Do QSEHRAs Work?: Frequently Asked Questions
Here are answers to some common questions about QSEHRAs:
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Who Is Eligible To Offer a QSEHRA?
Who Is Eligible To Offer a QSEHRA?
Employers may not be an Applicable Large Employer (ALE) to offer a QSEHRA. This means they employ less than 50 full-time or full-time equivalent employees and are not subject to ACA coverage requirements. These eligible employers also do not offer their employees group health plans.
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Who Can Contribute to a QSEHRA?
Who Can Contribute to a QSEHRA?
Like a regular health reimbursement arrangement (HRA), only employers can contribute to it. Employees cannot. Employer contributions are tax-deductible.
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What Health Expenses Can QSEHRAs Cover?
What Health Expenses Can QSEHRAs Cover?
QSEHRAs can reimburse eligible medical expenses that employees incur, as defined by IRS code 213(d). This includes the premiums they pay for their health insurance policy bought in the individual market, out of pocket medical costs, prescription drugs, and more.
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What’s the Advantage of a QSEHRA Over a Regular HRA?
What’s the Advantage of a QSEHRA Over a Regular HRA?
Health reimbursement arrangements (HRAs) have been popular among small companies because they provide employers a tax break for reimbursing employees’ healthcare costs and can help control overall healthcare spending. However, the ACA limited the use of those plans. It made “standalone” HRAs — those that reimburse costs for employees not covered by a group plan — unlawful and assessed them an excise tax of $100 a day per employee.
The QSEHRA was created to allow small businesses with less than 50 employees to offer a standalone HRA again — reimbursing employees’ health care costs on the individual market. Large companies are not eligible.
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Do All Eligible Employees Have To Be Included in the QSEHRA?
Do All Eligible Employees Have To Be Included in the QSEHRA?
Regular, full-time employees are eligible for a QSEHRA. Employers are allowed to, but not required to, exclude certain types of employees, including part-time and seasonal employees, those with less than 90 days of service, and those under age 25, among other factors.
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What Kind of Notification Requirements Must Employers Follow?
What Kind of Notification Requirements Must Employers Follow?
When offering a new QSEHRA, employers must notify their employees at least 90 days before the start of the plan year or the start of a new employee’s eligibility. It must also tell each employee:
- What the amount of the employee’s annual health benefit is
- That the employee must report their QSEHRA benefit to the marketplace where they apply for premium tax credits (PTC)
- That they will have to pay taxes on the benefit for any month that they fail to maintain health coverage
Get Help With the Qualified Small Employer HRA
Small businesses can provide their employees health insurance or help them pay for it. Paychex can help educate you, your management staff, and your employees on the health insurance options that best meet your company’s specific needs.
Insurance is sold and serviced by Paychex Insurance Agency, Inc., 225 Kenneth Drive, Rochester, NY 14623. CA license #0C28207
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