What is QSEHRA?
A QSEHRA, Qualified Small Employer Health Reimbursement Plan, is an HRA plan that can be offered by small employers of 50 or fewer employees. These plans allow employees to receive some health savings from their employer to a certain amount as long as the employee provides proof of their expenses.
How Does QSEHRA Work?
QSEHRA plans work in the following manner, Employers set somewhat of an allowance for their employees to use on qualifying health expenses. The employer keeps the money if the employee does not make a health claim. On the Employee side, they have access to this additional help whenever they need it, as long as it qualifies.
Employees will receive a set allowance for their health expenses according to their plan type. Individuals will receive less reimbursement than families. QSEHRA plans are tax-free for both parties, employer and employee.
- To become eligible to offer QSEHRA plans, employers businesses must:
- Not already offer a group health insurance plan to their employees
- Have less than 50 full-time equivalent employees.
Once these core qualifications have been met there are a few more that employers and employees must meet as well.
- Must fund the entire QSEHRA. Employees will not be able to contribute whatsoever
- Must give notice to their employees at least 90 days before the beginning of the year when the plans will begin
They must have health insurance that meets some requirements:
- An individual ACA marketplace health insurance plan
- A spouse or parent’s plan for employees under the age of 26
- Medicare or Medicaid
- Proof of their health insurance and costs
QSEHRA Pros and Cons
Pros Of QSEHRA
- One big advantage to QSEHRA plans is that it allows employers to provide tax-free money to their employees to get the plans that the employees want and need. The alternative is to get a generic group plan which does not always cover everyone’s needs.
- QSEHRAs are tax-advantaged for both employers and employees. Reimbursements made by the employer count as a tax deduction and do not require payroll taxes and for the employee, they do not need to pay income taxes.
- QSEHRAs allow employers to decide how much they would like to contribute because they do not require a minimum contribution. Employers also have a say in what will or will not be reimbursed
- These plans work in and out of state which makes it much easier for employers that have employees across the country.
- Costs are also much easier to predict with these plans because employers can set their own reimbursement limits.
Cons Of QSEHRA
- QSEHRA plans have a maximum limit of $5,150 for individuals and $10, 450 for families which may or may not be enough for certain individuals and families. Employers are also able to adjust contribution amounts based on family status but not seniority. Which could be a drawback when hiring new employees.
- QSEHRAs need to be managed by the employer unless they hire a QSEHRA administrator. With either decision comes more work for the employer or more expenses. Wrongfully administering QSEHRA plans could result in fines.
- QSEHRA plans are relatively new and somewhat hard to understand for some individuals. This makes it hard to explain all the benefits to any existing or prospective employees.