Looking for an alternative health benefit to group insurance for your church employees? Or looking for the answer to the question of "Can a church reimburse a pastor for health insurance?" A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) may be just what you are looking for.
QSEHRAs are increasing in popularity among pastors and church as group plans become more expensive. This arrangement is one way churches can offer group health that's cost-effective health insurance for church employees.
It also provide a way for the church to take care of its dedicated team and be compliant with the Affordable Care Act (ACA), if a church has more than 50 employees. For small churches with less than 50 full time equivalent employees, it's not required but offering insurance coverage is certainly a good idea.
Can a church reimburse a pastor for health insurance?
Yes! Offering a QSEHRA is a great, tax-free way for a church to offer health care to their pastor. Offering health insurance benefits helps churches recruit and retain talented pastors, ensures that pastors are taking care of themselves, and protects them against the financial challenges that come with high medical claims.
Affordable health insurance for churches
The most important thing about QSEHRA is that it allows churches to reimburse employees tax-free for individual health insurance premiums and medical expenses.
This is a big deal because churches can now get the same favorable tax treatment as big company group health plans but with a lot less hassle.
It also enables churches to adopt a strategy called "defined contribution" which is much simpler than hassling with one-size-fits all group health insurance plans and is proven to be much more efficient, affordable, and predictable. Churches can now give their employees a fixed dollar amount each month, say $200, and each employee can then shop for the plan that fits his or her needs the best. Sally can choose a Blue Cross plan for her doctor, Roger can get Aetna to cover his prescription, and Betty can stay on her husband's group plan.
Gone are the days of comparing quotes from each insurance company or the headache of trying to get everyone what they want without breaking the budget! And employees end up happier too.
→ Read this pastor's QSEHRA testimonial here!
QSEHRA Benefits for Churches: Predictable costs
Defined contribution health benefits allow churches complete control over the costs of the health benefits, creating predictability with the health benefits budget. For example, with defined contribution health benefits:
- There are no minimum amounts to contribute (the church decides the amounts of the defined contribution allowances).
- Costs are not incurred until employees receive reimbursement
- Pre-funding accounts are not required
- Unused funds stay with the church
Does your church qualify for QSEHRA?
In order to participate in the Qualified Small Employer HRA, the following criteria need to be met.
- The church must have fewer than 50 full time employees
- Cannot be combined with a group health plan
- Employees use the HRA to reimburse health insurance premiums and other out-of-pocket medical expenses tax-free.
There are no minimum contributions to participate. Annual contributions are capped at a QSEHRA maximum of $5,850 for individual employees (this adds up to $487.50 per month) and a contribution of $11,800 for employees with a family (this adds up to $983.33 per month) for 2023. HRAs are 100 percent company funded and employee contributions are not allowed.
- Employees participating in a Qualified Small Employer HRA are required to have minimum essential coverage to receive HRA reimbursements.
- Employees participating in Qualified Small Employer HRA may access premium tax credits. However, if an employee is eligible for a premium tax credit, the amount of the credit will be reduced by the monthly HRA amount.
- Generally, the church must make the same HRA contributions for all eligible employees. However, amounts may be varied based on family status or employment status such as clergy/pastor, full-time staff, or all staff.
Take Command is here to help
Does all of this sound complicated? Expensive? Here's some good news. With our help, this can be easy! Our QSEHRA platform will handle all the accounting and legal legwork for the QSEHRA, take care of onboarding each of your employees, and make tax time easy and painless. You'll never have to hassle with receipts or worry about setting up a health plan again.
Hungry for more? The introduction chapter of our handy QSEHRA Guide is a great pace to start.
This post was originally published in 2017 and has been updated in 2023 to reflect the exciting changes going on in the HRA world.
I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!