Since its inception in 2017, the qualified small employer HRA (QSEHRA) has steadily increased in popularity. It’s easy to see why. QSEHRA allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free.
This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want.
In general, employers have a lot of flexibility with how they design and implement a QSEHRA. An overarching rule though is that employees must be treated fairly. That means you can’t offer some employees more money than others unless they can be fairly separated using the design criteria below. The IRS calls this “same terms requirements” and provides details in Section C of IRS Notice 2017-67.
What is a QSEHRA Contribution Limit?
All reimbursements are subject to annual maximums and become available to employees on a monthly basis. This means employees can’t take the full annual amount in January—instead, the funds become available to employees each month. Although if they do submit a medical expense that exceeds their reimbursement limits, they can be paid out on a monthly basis.
In the law, these amounts are tied to inflation, so we expect them to go up a little bit every year. The IRS has announced the 2020 annual maximum contribution rates for QSEHRA.
What are the QSEHRA 2020 contribution limits?
Compared to QSEHRA 2019 limits, the reimbursement limits have increased a bit for 2020.
For an individual: $5,250/year or $437.50/month. For a family: $10,600/year or $883.33/month
For some businesses, depending on local market factors and their unique company makeup, these monthly QSEHRA limits work great for their employees to be able to choose a quality MEC plan. For some employers, however, they want to offer more than the QSEHRA contribution limit.
For those folks, there's a new HRA called the Individual Coverage HRA (ICHRA for short) that has no contribution limits. It's worth checking out if the limits are a concern. Again, what's best for one business isn't necessarily the best for another. Our team is on hand to help guide you through this decision!
Update: The 2021 QSEHRA limits have now been announced:
- Individual $5,300 ($441.67/month)
- Family $10,700 or ($891.67/month)
How much to reimburse for QSEHRA
Employers have a few options on setting reimbursement rates. The key is rates have to be offered fairly to all eligible employees. Here are the most common tried and true methods we see:
- Reimburse all the same amount. This is pretty simple. Just pick a rate up to the individual maximum to give all employees.
- Reimburse all the maximum amount. Give all employees the maximum amount they are eligible for under the “single” or “family” categories.
- Reimburse different amounts based on family size. Employers can set different rates based on an employee’s dependents. The IRS requires that employers choose a reference plan or offer a fair percentage of the maximum.
- Reimburse different amounts based on employee age. Employers can vary rates by age but they must be tied to a reference plan on the individual market. To save you significant hassle though, most marketplace plans offer premiums in a 1:3 ratio for individuals ages 26 to 64.
Remember that other HRA we talked about above? The one that has no contribution limits? It also has another feature for those who want to offer their employees different amounts. While QSEHRA requires that all employees are reimbursed equally and that amount is only allowed to be scaled based on age or family size, ICHRA offers 11 different employee classes that represent different buckets for an employer to offer different amounts to. Again, it's a great option for some businesses and we are here to help you make the right decision for your company.
Let Take Command Health Help!
Take Command Health makes setting up an HRA for your business easy. Our team will help you set your budget, take care of the admin paperwork, and help your employees pick a plan that suits their needs. For an in-depth look at the QSEHRA, check out our guide. Or visit our QSEHRA FAQ page!