For small business owners, navigating the complex employee benefits landscape can take time and effort. Traditional group health insurance plans may only sometimes be feasible due to cost constraints or limitations. A solution is designed for small employers: Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). This blog post will delve into what QSEHRA stands for by breaking apart what QSE and HRA stand for. For a complete guide on the QSEHRA, including its key features, benefits, eligibility requirements, compliance, and how to implement it, see our guide on What is a QSEHRA.
QSEHRA, which stands for Qualified Small Employer Health Reimbursement Arrangement, represents a tax-advantaged arrangement designed to assist small businesses in offering their employees a tax-free method for covering qualified medical expenses, including health insurance premiums. An employer establishes an HRA to reimburse employees for eligible medical expenses they or their dependents incur. For other definitions of an HRA, you can see our article on What HRA stands for.
QSEHRA, along with other related terms like an ICHRA (Individual Coverage HRA), EBHRA (Excepted Benefit HRA), and HRA (Health Reimbursement Arrangement), are all IRS-approved mechanisms that allow employers to contribute tax-free funds towards their employees' healthcare needs. This will enable employees to select their health insurance policies or utilize the funds for other eligible medical expenses.
QSEHRA, as part of its acronym, highlights the concept of "qualified small employers." Qualified small employers are defined as businesses with fewer than 50 full-time equivalent employees who do not offer their employees a group health insurance plan. Only companies that meet this specific criteria can participate in this health reimbursement arrangement.
For businesses with more than 50 full-time equivalent employees who want to use an HRA to cover health insurance premiums, the ICHRA would be the HRA type to choose.
The Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-provided health benefit that offers tax-free reimbursements for individual health insurance premiums and qualified medical expenses. Employees receive a monthly allowance to help with premiums and eligible expenses. ICHRAs provide flexibility for employees and tax advantages for employers. With an ICHRA plan, there is no minimum or maximum employee count restrictions or participation requirements for employers.
For businesses hoping to add an HRA to complement their group health plan, the Standard HRA and Expected Benefit HRA would be the types to add to your current insurance offering.
A Standard Health Reimbursement Arrangement (HRA) is an employer-funded and employer-owned account allowing tax-free reimbursements for eligible medical expenses. Employers control the contribution amounts, frequency, and specific expenses they will be reimbursed. While the IRS provides general guidelines for eligible expenses, employers may have additional restrictions.
With the Expected Benefit Health Reimbursement Arrangement (EBHRA), employers offering a group plan can reimburse employees up to the annual limit of $2,100 for premiums paid toward excepted benefits. It's important to note that EBHRAs cannot reimburse premiums for individual coverage, traditional group health plans, or Medicare, but they can cover COBRA or continuation coverage premiums. EBHRAs can be offered by organizations of any size as long as they provide a group health plan.
QSEHRA offers several advantages for both employers and employees:
Tax advantages: Contributions made by the employer to the QSEHRA are tax-deductible for the business, while reimbursements received by employees are generally tax-free.
Employee flexibility: QSEHRA empowers employees to select health insurance plans that suit their needs and preferences, including coverage purchased through the marketplace or private providers.
Reimbursement of premiums: Employees can utilize QSEHRA funds to reimburse themselves for health insurance premiums, whether enrolled in individual coverage or specific employer-sponsored plans.
Increased employee retention and recruitment: Offering QSEHRA can make small businesses more competitive in attracting and retaining talented employees by providing an attractive benefits package.
Cost control: Employers can set predetermined contribution limits, giving them better control over their health benefit costs.
To offer a QSEHRA, small employers must meet specific eligibility criteria:
Compliance considerations include fulfilling notice requirements, adhering to contribution limits, understanding eligible expenses, and fulfilling reporting requirements.
To implement QSEHRA effectively, employers should consider the following steps:
QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. It is a health benefits program that allows small employers to provide tax-free reimbursements to their employees for qualified medical expenses, including health insurance premiums.
To be eligible for QSEHRA, the employer and the employee must meet specific criteria. The employer must be a small business with fewer than 50 full-time employees and not offer a group health plan. The employee must be enrolled in individual health insurance coverage and not be eligible for other affordable, minimum essential coverage.
Under QSEHRA, the employer sets a maximum reimbursement amount for employees, which can vary based on family size. Employees incur eligible medical expenses, such as health insurance premiums or out-of-pocket costs, and submit documentation to the employer for reimbursement. The employer then reimburses the employees up to the set maximum amount, which is tax-free for the employees.
Yes, there are compliance requirements for QSEHRA. Employers must provide a written notice to eligible employees about the QSEHRA, including the reimbursement amount, at least 90 days before the start of each year. Additionally, employers must report the QSEHRA benefit on their employees' Form W-2.
Employees can use a QSEHRA to purchase individual health insurance plans that meet certain requirements. The health insurance plan must be ACA-compliant, covering essential health benefits and meeting other mandated standards. Employees are responsible for selecting and enrolling in their health insurance plans, and the QSEHRA funds can be used to offset the cost of premiums or other qualified medical expenses.
Our team knows the ins and outs of the health insurance marketplace and will guide you towards the solution that make the most sense for your business and your team. Come with questions! Our experts are happy to dig into the details to get you the clarity you need.
During the call, Liferaft will run a cost-benefit analysis on your company's current healthcare spending and show you different ways you can save—without sacrificing plan quality. After your consult, Liferaft will design a unique plan for your employee's health insurance, including suggested plans and accounts, plan policy documents, and the annual budget.
