What Is a QSEHRA and How does it Work?

As a small business owner, you have many things to consider when managing your business. One often overlooked consideration is health benefits – when your business is just starting to expand and grow, and you have an increasing number of employees who work with you, how do you provide healthcare for them?

This question may cause business owners to panic, as providing healthcare to employees can be a very expensive proposition. There is, however, another option if you employ 50 full-time workers or fewer – and it’s called a QSEHRA plan.

Already asking ‘what is QSEHRA?’ Here’s what you need to know:

What is QSEHRA?

QSEHRA stands for a Qualified Small Employer Health Reimbursement Arrangement. This arrangement is considered to be a health coverage ‘subsidy,’ meaning this coverage is provided in part through the government. 

A QSEHRA plan allows employers to reimburse employees for their medical expenses up to a certain predetermined amount. This arrangement is specific to small business owners and is meant to help employers manage the cost of providing healthcare while also taking care of their employees.

How does it work?

Any company that offers a QSEHRA reimburses employees for healthcare costs each year. Enrollment is performed in the same way as a traditional plan, with employees signing up during an enrollment season or after a qualifying life event (typically a marriage or divorce).

The plan only covers full-time employees, so business owners aren’t required to expand the benefits to other types of workers. This structure can be beneficial if you have more than 50 employees, but not all of them work for you full-time. This way, you can still provide a measure of benefits to the majority of your workforce.

The reimbursement offered can be used to pay for healthcare services, such as monthly premiums, prescriptions, copays to the doctor, and any necessary lab work. A business can choose what expenses to cover from the list of reimbursable services, but they may not expand upon them. 

The current maximum under QSEHRA rules is $5,300 per year for single employees and $10,700 per year for employees with families. This figure is determined by the IRS and is limited because the money is tax-free to employees and a tax deduction for the employer. 

Is There an Advantage?

Yes! The QSEHRA rules provide tax benefits to both small businesses and employees. Employers may file taxes with QSEHRA reimbursement counted as deductions, and employees may receive the reimbursement as tax-free income. 

In addition, plans are customizable to a degree. Say, for example, you want to set up a plan where employees may be reimbursed for up to $300 per month. 

Each month, employees submit paperwork proving their healthcare costs, and the business repays the expenses. The amount reimbursable each month is up to the business owner to decide; just ensure the monthly amounts add up to less than the yearly maximum.

Legal Compliance

There are specific laws that cover QSEHRA plans and the businesses that use them. In order to comply with these laws, business owners must ensure that the agreement terms apply to all employees equally. 

QSEHRA applies to full-time employees, so business owners are not legally required to offer new, part-time, seasonal, or freelance workers with these benefits. Full-time employees are required to carry their own minimum essential health coverage, as required by the ACA, in order to receive reimbursements.

If your business eventually expands beyond 50 employees, or you make the decision to change to another type of group insurance for your workers, you are no longer allowed to offer a QSEHRA.

If you’re still searching the internet for “what is QSEHRA?” check out this article by the healthcare marketplace.