Healthcare costs can be a significant burden for employers and employees, especially for small businesses. The government has introduced various options, including Health Reimbursement Arrangements (HRAs), to alleviate this financial strain. There are a few different types of HRAs—this article will explore what a QSEHRA is, how it works, its benefits, eligibility requirements, and how Liferaft can simplify the QSEHRA administration.
Definition and Overview
A QSEHRA is a tax-advantaged benefit program that allows eligible small employers to provide their employees with funds to reimburse them for qualified medical expenses. QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement and was created as part of the 21st Century Cures Act and became available for small employers starting January 1, 2017. QSEHRAs are designed to help small businesses provide healthcare benefits without the complexities and costs associated with traditional group health insurance plans.
How Does It Work?
An employer sets aside a yearly amount to reimburse employees for qualified medical expenses. 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 employee up to the limit.
Eligibility & Requirements
To offer a QSEHRA, an employer must meet specific criteria:
The employer must be a small business with fewer than 50 full-time equivalent employees.
The employer cannot offer a group health plan to any employee.
The employer must offer all eligible employees the QSEHRA on the same terms.
Employees are eligible for a QSEHRA if they:
Are full-time employees (part-time employees may be eligible under certain circumstances).
Are not enrolled in a subsidized health insurance plan through the marketplace.
A QSEHRA offers several benefits for both employers and employees, including cost savings, flexibility, and dual tax advantages. These combined benefits make QSEHRA an attractive option for both employers and employees seeking affordable and flexible healthcare coverage.
For employers, a QSEHRA can be a cost-effective alternative to traditional group health insurance plans. The employer sets a budget for the reimbursement amount, which can be adjusted annually. This allows small businesses to control their healthcare expenses while providing valuable employee benefits.
For employees, a QSEHRA provides an opportunity to receive tax-free reimbursements for qualified medical expenses. This can significantly reduce their out-of-pocket healthcare costs and make healthcare more affordable.
Unlike group health insurance plans with limited options, a QSEHRA offers flexibility to employees. They can choose their health insurance coverage and use the QSEHRA funds to offset premiums and other eligible expenses. This empowers employees to select a plan that best suits their individual needs.
Both employers and employees enjoy tax advantages with a QSEHRA. Employer contributions are tax-deductible, reducing the employer's tax liability. Employee reimbursements are tax-free, not subject to income tax or payroll taxes.
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Group health can be complex, restrictive, and costly. Liferaft offers something different.
Liferaft's 2023 Whitepaper on HRAs is the most comprehensive guide available, giving you what you need to determine if an HRA makes sense for your business.
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What you get in your guide: • What is an HRA? • HRA Requirements & Features • Eligible HRA Expenses • When an HRA Makes Sense • Different HRA Types • States Where HRA Works Best
Setting Up a QSEHRA
Setting up a QSEHRA involves several steps:
1. Determine eligibility: Ensure that your business meets the criteria for a QSEHRA and that your employees meet the eligibility requirements.
2. Establish a formal plan: Draft a QSEHRA plan document outlining the arrangement's terms and conditions.
3. Provide employee notice: Distribute a statement to all eligible employees explaining the details of the QSEHRA, including reimbursement limits and eligible expenses.
4. Implement administration procedures: Set up a system to receive and review employee reimbursement requests and process payments.
5. Maintain proper records: Keep records of reimbursements, employee notices, and other relevant documentation for compliance purposes.
The contribution limits for a QSEHRA are determined annually and are subject to adjustment. For 2024, the maximum reimbursement limits are $6,150 for individual coverage and $12,450 for family coverage. These limits may be adjusted for inflation in subsequent years, so staying updated with the current limitations is essential.
QSEHRAs have specific reimbursement rules that must be followed:
Reimbursements cannot be made for health insurance premiums paid with pre-tax dollars or for expenses already reimbursed by other sources.
Reimbursements must be substantiated with proper documentation, such as receipts or insurance statements.
Compliance & Reporting
Employers offering a QSEHRA must provide an annual notice to their eligible employees. The notice must include information about the QSEHRA, such as the reimbursement limits, eligible expenses, and how to request reimbursements. The notice must be provided at least 90 days before the start of each plan year or within 90 days of the employee's eligibility date.
Employers offering a QSEHRA may need to report certain information to the IRS. This includes the total reimbursements made under the QSEHRA and the number of employees participating. The reporting requirements are fulfilled through the annual filing of Form 1095-C.
QSEHRA vs. Other HRA Options
The QSEHRA differs from the Individual Coverage HRA (ICHRA), another type of HRA introduced by the IRS. While both HRAs are designed to help employers provide healthcare benefits, there are some key differences:
Eligibility: The QSEHRA is available only to small employers, whereas employers of any size can offer the ICHRA.
Group Health Plan Requirement: The QSEHRA does not allow the employer to offer a group health plan to any employee. With the ICHRA, you cannot offer both an ICHRA and a group health plan to the same class of employees.
Reimbursement Limits: The QSEHRA plan has annual reimbursement limits, making the QSEHRA more suitable for smaller businesses. The ICHRA plan does not have a maximum reimbursement amount.
The QSEHRA offers advantages over traditional group health insurance plans for small employers:
Cost Control: With a QSEHRA, employers can set a specific budget for healthcare expenses, allowing them to manage costs more effectively.
Flexibility: Employees can choose their health insurance plans, giving them more customization options.
Tax Advantages: Both employers and employees enjoy tax advantages with a QSEHRA, reducing overall healthcare expenses.
Liferaft Simplifies The QSEHRA
Liferaft is an affordable HRA administrator specializing in simplifying the administration of QSEHRAs for small businesses. It offers a user-friendly platform that streamlines the setup and management of QSEHRAs, making it easy for employers to provide healthcare benefits to their employees.
Liferaft offers several benefits for small businesses:
Easy Setup: Liferaft provides step-by-step guidance in establishing a QSEHRA, ensuring employers meet all compliance requirements.
Reimbursement Management: Liferaft's platform simplifies the reimbursement process, allowing employees to submit their expenses online and providing employers with an efficient system to review and approve reimbursements.
Compliance Support: Liferaft helps employers comply with QSEHRA regulations by providing annual notice templates and assisting with IRS reporting requirements.
Customer Support: Liferaft offers dedicated customer support to assist employers and employees with any questions or issues arising during the QSEHRA administration.
Set Up with Liferaft
Setting up a QSEHRA with Liferaft is a straightforward process:
1. Meet with our experts: After your initial meeting with Liferaft, you’ll receive a proposal detailing the cost savings using the QSEHRA and health insurance plans curated to fit the needs of your employees.
2. Customize your QSEHRA: Once satisfied with the proposal, you’ll begin customizing your QSEHRA benefit with Liferaft. With Liferaft, you’ll set your reimbursement limits, define eligible expenses, and tailor the QSEHRA to fit your business needs.
3. Invite employees: Liferaft will send invitations to your eligible employees, allowing them to join the QSEHRA and submit their reimbursement requests.
4. Manage reimbursements: Use Liferaft's platform to review and approve employee reimbursement requests, ensuring timely and accurate payments.
5. Stay compliant: Liferaft provides automated annual notice distribution and generates the necessary reports for IRS compliance.
Can a QSEHRA be offered alongside a group health plan?
No, a QSEHRA cannot be offered alongside a group health plan. The eligibility requirement for a QSEHRA is that the employer must not offer a group health plan to any employee. This means that if an employer already provides a group health plan, they are generally not eligible to offer a QSEHRA. The QSEHRA is specifically designed for small employers who do not offer group health plans and want to provide a different type of healthcare benefit to their employees.
Are QSEHRA reimbursements taxable for employees?
No, QSEHRA reimbursements are not taxable for employees. They are considered tax-free benefits. This means that the reimbursements received from a QSEHRA are not subject to federal income tax, state income tax (in most states), or Social Security and Medicare taxes. It provides a significant advantage for employees as they can receive reimbursement for qualified medical expenses without any tax implications, resulting in additional savings for their healthcare costs.
Can an employer change the QSEHRA reimbursement amount during the plan year?
No, an employer cannot change the QSEHRA reimbursement amount during the plan year. The reimbursement amount is typically set annually and cannot be adjusted mid-year. Employers have the opportunity to review and potentially adjust the reimbursement amount when renewing the QSEHRA for the following plan year. This provides stability and predictability for both employers and employees, allowing them to plan their healthcare expenses accordingly.
Are there limitations on the types of medical expenses that can be reimbursed through a QSEHRA?
Yes, there are limitations on the types of medical expenses that can be reimbursed through a QSEHRA. QSEHRAs can only reimburse eligible medical expenses as defined by the IRS. Eligible expenses generally include health insurance premiums, deductibles, copayments, prescription medications, and other qualified healthcare expenses. However, it's important for both employers and employees to familiarize themselves with the specific guidelines outlined by the IRS and ensure that the expenses being submitted for reimbursement meet the criteria.
What happens if an employee leaves the company during the plan year?
Employees who leave the company during the plan year are no longer eligible for reimbursements from the QSEHRA. However, they may qualify for other options, such as COBRA continuation coverage or marketplace coverage. Communicating the options to the employee and ensuring compliance with applicable regulations is essential.
Book your consult with Liferaft
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.