QSEHRA, or Qualified Small Employer Health Reimbursement Arrangement, is a valuable option for small businesses seeking to provide healthcare benefits to their employees. This arrangement allows employers to reimburse employees for qualified medical expenses, including premiums for individual health insurance policies, up to a specified annual limit. QSEHRA offers flexibility and tax advantages for both employers and employees, making it a viable solution for enhancing employee benefits while managing costs.

Understanding QSEHRA

What is a Qualified Small Employer HRA (QSEHRA)?

A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, is a health benefit for small businesses with less than 50 full-time time employees. A QSEHRA essentially allows employers to reimburse employees for the cost of their individual health insurance premiums and medical expenses tax-free. To learn more about QSEHRAs and how they work, continue reading the content below.

How a QSEHRA works

First, the employer sets the monthly per-employee reimbursement allowance. There are no minimum contribution requirements. While an employer must offer the same reimbursement allowance to both part and full-time employees, you may offer different allowances based on family status.

It’s important to keep in mind that the IRS sets yearly contribution caps. For example, the QSEHRA contribution limits for 2022 are $5,450 for self-only employees and $11,050 for employees with a family.

After the employer sets the allowances, the employees make purchases based on their health care needs. They can purchase individual health insurance during open enrollment or during a special enrollment period.

Your employees can also make other qualified purchases that they can be reimbursed for. There are 200+ expenses that are eligible for QSEHRA reimbursement.

Some examples of expenses that are eligible for QSEHRA reimbursement include:

• Individual dental, vision, or long-term care insurance premiums
• Copays
• Deductibles
• Prescriptions
• Over the counter (OTC) drugs
• Chiropractor visits

You can find the full list of reimbursable expenses under IRS Publication 502. After your employees make these purchases, they submit the proof of expenses to the HRA administrator. You can also choose to be a self-administer of your QSEHRA. After the proof of purchase is reviewed, they are reimbursed. Remember, small business reimbursements are tax-free; this includes payroll tax and income tax if your employees have a qualifying health insurance plan. If your employees don’t have a qualifying health insurance plan, they must report the reimbursements as taxable income at the end of the year.

Advantages of QSEHRA for small businesses

 QSEHRA offers several advantages for small businesses seeking to provide healthcare benefits to their employees. Firstly, it is often more cost-effective compared to traditional group health insurance plans, as employers can set their own contribution amounts within specified limits, allowing for greater control over expenses. Secondly, QSEHRA provides flexibility in plan design and contribution amounts, enabling employers to tailor the benefits package to meet the diverse needs of their workforce. Additionally, both employers and employees can benefit from tax advantages associated with QSEHRA. Employers can deduct reimbursements as business expenses, while employees receive tax-free reimbursements for qualified medical expenses, reducing their taxable income. These advantages make QSEHRA a valuable option for small businesses looking to offer competitive healthcare benefits while managing costs effectively.

QSEHRA vs. HRA and other health benefits options

When it comes to choosing health benefits for your small business, you might be weighing your options between QSEHRA, traditional health insurance, and HSAs. Let’s break it down. With traditional health insurance, you often have fixed premiums and limited flexibility in designing your plan. QSEHRA, on the other hand, gives you more control over costs and customization. You can adjust contributions based on your budget and what your employees need, offering them more personalized coverage options. Now, comparing QSEHRA to HRAs, both offer similar perks, but QSEHRA is specifically tailored for small businesses with fewer than 50 full-time employees, giving them unique tax advantages and cost-effective benefits. And then there’s HSAs, which offer tax benefits too, but they’re tied to high-deductible health plans and are individually owned by employees. QSEHRA, however, doesn’t require employees to have an HDHP and offers more flexibility in plan design and contributions. So, depending on your business size and what you’re looking for in benefits, each option has its pros and cons.

QSEHRA eligibility and enrollment requirements

Small business eligibility

Now that we’ve answered the question of “what is a QSEHRA?”, you’re probably wondering what businesses are eligible for one. Your small business is eligible for a Qualified Small Employer HRA if you have less than 50 full-time equivalent employees and do not offer small business health insurance plans.

Employee eligibility

With a QSEHRA, all full-time employees are automatically eligible.

You can choose to offer eligibility for your QSEHRA to part-time employees. However, you must offer the same allowances to both groups. This means that you can’t offer full-time employees any higher of an allowance than part-time employees, and vice-versa.

Additionally, to participate in a QSEHRA your employees are not required to have individual health insurance. Your employees can choose to spend their QSEHRA to pay for their individual health insurance premiums and/or other qualified health care expenses.

Employer enrollment requirements

There are certain requirements for employers to enroll in a QSEHRA plan. First of all, an employer must be officially considered a small business according to IRS standards. In order to be considered a small business under these standards, a business must have no more than 50 employees total.  Another requirement for a company to enroll in a QSEHRA plan is that they must not currently offer another type of health insurance plan.

Considerations for small business owners

Navigating health benefits for your small business can be overwhelming. Here, we’ll explore key considerations to help you make informed decisions and tailor a benefits package that suits your unique needs and those of your employees.

Plan design options

When it comes to setting up a QSEHRA for your small business, customizing the plan design is key. This means tailoring the reimbursement levels and eligible expenses to fit the specific needs of both your business and your employees. By doing so, you can ensure that the QSEHRA effectively meets the healthcare needs of your workforce while remaining within your budget constraints.

Compliance requirements

Understanding compliance requirements is crucial for small business owners implementing a QSEHRA. This involves familiarizing oneself with IRS regulations and guidelines governing QSEHRAs, as well as adhering to reporting and documentation requirements. By staying informed and compliant, employers can avoid potential penalties and ensure smooth administration of the QSEHRA for their employees.

Employee communication and education

Effective employee communication and education are essential aspects of implementing a QSEHRA in a small business. It’s crucial to clearly communicate the benefits of the QSEHRA to employees, explaining how it works and how it can benefit them. Providing resources and support for understanding reimbursement procedures, including guidance on eligible expenses and how to submit claims, helps empower employees to make the most of their benefits. This fosters transparency, trust, and engagement among employees, ultimately leading to successful utilization of the QSEHRA program.

Is a QSEHRA right for your small business?

A QSEHRA may be right for your small business if…

• You have fewer than 50 full-time employees
• You wish to reimburse your employees’ health insurance premiums as well as qualified medical expenses.
• This can help your employees prevent surprise medical bills and cover them when they do come up
• You want to offer the same amount to all your full-time employees, except by family status
• Your employees have various insurance coverage situations. For example, they may have their own individual health insurance plan or be on their spouse’s employer provided plan.

If you feel that a QSEHRA is not right for your small business, another option you may want to consider is an ICHRA, or an individual coverage HRA. There are a few key differences between QSEHRA vs. ICHRA, but one notable feature about an ICHRA is that you can offer both an ICHRA and a group health insurance plan. This is great if you want to offer both a health insurance plan and an HRA option to your employees.

Implementing QSEHRA

If you have decided that a QSEHRA is the right move for your small business, you can start looking for your options now. However, if you’ve decided that you instead want to offer a small group insurance plan to your employees, you can start shopping with eHealth. Our online tools and expert licensed health insurance agents can help you save and find the right plan for your small business needs. Start shopping with eHealth today and let’s find the right plan, together.