QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is a new, more efficient way for small businesses to offer health insurance to their employees. A QSEHRA lets small businesses offer health benefits in a tax-efficient way without the extra hassle and headache of traditional group insurance plans, which largely don’t work for the modern workforce anyway.
All about QSEHRA health insurance
This type of health benefit is considered a Health Reimbursement Arrangement (HRA) since employees will cover medical expenses upfront, and employers will reimburse them.
Employees like QSEHRA because they get to choose the health coverage that works best for them, instead of getting stuck with a one size fits all employer group plan, and get reimbursed by their employer for premiums and qualified medical expenses.
So what is the source for funding a QSEHRA? QSEHRA benefits are completely funded by employers which means employers are responsible for covering the approved reimbursement costs up to the max allowance. This model really puts the power back to the people.
QSEHRA health insurance is a new benefits model that allows employers to contribute to health insurance that fits the employer’s budget and employees' needs.
QSEHRA is a health benefits game changer in that it will enable employers the opportunity to provide health benefits in a way that works for them and the changing workforce landscape.
QSEHRA Eligible Expenses
While QSEHRA and traditional health insurance are not the same, one similarity to health insurance is that there are certain medical expenses that will be “covered” as determined by the plan, or in this case, QSEHRA. And with QSEHRA, you, the business owner, get to decide whether or not to reimburse for medical expenses in addition to medical premiums, rather than an insurance company deciding what's covered and what's not. The rest is left up to the IRS.
So, what is considered a QSEHRA eligible expense? Employees can use their QSEHRA benefits to help cover any of the qualifying medical cost outlined in IRS Publication 502. These may include a health insurance premium, prescription and non-prescription drugs, personal hygiene products, doctor visits, dental and vision care, mental health care, and more. Make sure that the expenses follow the guidelines by IRS Publication 502 Medical and Dental Expenses. Take Command has a full list of specific things that qualify as QSEHRA-eligible expenses.
Many small businesses and organizations love the flexibility and freedom of offering a QSEHRA. While there are a few requirements, this HRA is much easier to administer and has fewer restrictions and hoops to jump through than traditional group health insurance plans. Here’s what you need to know about the QSEHRA requirements for employers and employees.
Employer Requirements for QSEHRA
QSEHRA is an excellent option for small businesses that have fewer than 50 full-time employees. To qualify for QSEHRA and give tax-free reimbursements, a small business must meet these QSEHRA requirements:
- Be considered a small business. The business must be a “small employer” according to the IRS, which means fewer than 50 full-time employees (defined in IRS section 4980H(c)2).
- Your business must not have a group health plan. The small business or non-profit can’t have a traditional group health insurance plan (defined in IRS section 5000(b)) because the purpose of QSEHRA is to reimburse for an employees individual health insurance and qualified medical expenses, not a group. However, this doesn’t apply to non-health group benefits like disability insurance or life insurance.
Employee Requirements for QSEHRA
To receive tax-free reimbursements from a QSEHRA, an employee must:
- Have individual (or family) health insurance coverage. As long as the employee is covered by their spouse’s plan, parents plan, or purchases their own individual plan, they can receive reimbursement through QSEHRA. Plans must provide Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g). MEC plans include major medical plans, Medicare, Medicaid, etc. Faith-based sharing ministries, short-term plans, and indemnity plans are not MEC but may be able to be supplemented with a MEC offering in order to qualify.
- Submit a claim(s) for reimbursement to the QSEHRA administrator. Employees need to submit claims and have proof of money spent (save receipts!) on QSEHRA eligible expenses. Then, the QSEHRA administrator will process the claim and issue a check for reimbursement.
Can Business Owners Participate in QSEHRA?
Yes! A small business owner can participate in QSEHRA if they’re also an employee of the business. The corporate structure of the company usually determines this. If this applies to you, check the status of your business to know if you qualify. And even if you don’t, you may be eligible as self-employed and can deduct health insurance on your personal tax returns.
→ Read more! Is a small business owner eligible for QSEHRA?
Are there limits to QSEHRA reimbursements?
Small employers can set their reimbursement budgets however they want. Some employers contribute a few hundred dollars and others a few thousand dollars.
The Take Command platform gives you an overview dashboard where you can easily manage your HRA. And each month a report is generated that shows you exactly how much to reimburse each employee and shows historical reimbursements.
With a QSEHRA, you can decide what amount to contribute to your employee's health care expenses, up to an annual maximum that the IRS sets. Each year the QSEHRA reimbursement maximum increases slightly to adjust for inflation. According to the IRS, here’s what to expect in 2023.
What are the IRS 2023 QSEHRA limits?
- Individuals $5,850 or ($487.5/month)
- Family $11,800 or ($983.33/month)
What were the IRS QSEHRA limits 2022?
- Individuals $5,450 or ($454.16/month)
- Family $11,050 or ($920.83/month)
How To Set Up A QSEHRA
Following this guide, you can learn how to set up a QSEHRA in 7 easy steps.
- Make sure you’re an eligible employer. To be eligible, you must have fewer than 50 employees, not offer a group health insurance plan, and must provide QSEHRA to all employees.
- Decide how you want to administer your QSEHRA. You can administer it yourself (note: not recommended!) or hire a third party to administer, like Take Command. Your administrator will help you figure out how to set up a QSEHRA that works best for you, understand the QSEHRA limits, and what QSEHRA funds can be used for.
- Decide who will be eligible for your QSEHRA. Technically, you must offer it to all eligible employees, which means all full-time employees.
- Determine your QSEHRA reimbursement limits. There aren't minimum contribution or participation requirements, but the IRS sets a maximum reimbursement limit. Also, make sure you create a consistent reimbursement policy that applies equally to all eligible employees.
- Determine which expenses you will reimburse. Will you reimburse health insurance premiums only or insurance premiums along with qualified medical expenses?
- Get squared away with legal and paperwork. Once you decide a start date, get all your legal documents in order and set up a process to run your QSEHRA. This is where an HRA administrator can be super helpful. They’ll take care of all of the processes and legal work and ensure it goes smoothly.
- Finally, tell your employees about the exciting new health benefit! Make sure they understand what it is and how to use it. HRA administrators like Take Command offer employee onboarding that covers all of this and more.
HRA vs HSA
An HRA vs a health savings account (HSA) are both health reimbursement arrangements that offer tax-advantaged ways for employees to save for medical expenses, but they accomplish this in different ways. An HSA lets employees set aside money pre-tax to put into a savings account that can be used for medical expenses.
An HRA is a workplace health benefit that the employer funds, chooses the reimbursement amounts and limits and provides employees with reimbursement for qualified medical expenses tax-free.
- HSA: employees' money is taken out of their paycheck directly and put into their health savings account which they have access to at anytime to cover medical expenses.
- HRA: employers set aside money tax-free that isn’t taken out of employees paychecks. Instead, employees pay for their medical expenses upfront and get reimbursed through the employers’ QSEHRA or other HRA.
HRA vs QSEHRA
QSEHRA is a specific type of HRA. HRA is the umbrella under which QSEHRA (and others) live. So if you’re trying to decide which HRA is right for you, compare the specific types, such as ICHRA vs QSEHRA. And within this, even if you want to have a self-administered QSEHRA or have an HRA administrator.
QSEHRA Administration at Take Command
First, what is a QSEHRA plan administration and how does it work? QSEHRA plan administrators is the software or platform that allows for tax-free reimbursement of medical expenses and insurance premiums for employees. Many QSEHRA providers find that self-administration is time-consuming and highly complex. A QSEHRA administration partner, like Take Command, will make your life easier by taking compliance, notifications, and reporting off your plate while supporting your employees with their onboarding, questions, and plan choice.
Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.