With the QSEHRA benefit, small employers are able to reimburse their employees tax-free for their health insurance premiums and medical expenses. Under the benefit, the employer sets a maximum monthly allowance (in accordance with IRS contribution limits) each employee is eligible to receive. One question we hear repeatedly from employees is “what happens to my monthly allowance if I do not claim the full amount each month?”
Here's what to know about what happens to your QSEHRA monthly allowance when the QSEHRA maximum reimbursement isn't met for the month.
If you're looking into a Qualified Small Employer HRA as an alternative to group health insurance or as an on-ramp to benefits for your team, you're probably wondering what happens to unused funds with a QSEHRA or whether or not those QSEHRA funds rollover month to month or annually.
These are great questions!
Let's dig in.
Is unclaimed QSEHRA monthly allowance use it or lose it?
This feature of the QSEHRA is especially helpful for employees who may not have consistent medical expenses throughout the year. For example, if an employee has a routine doctor's appointment every six months and doesn't have any other medical expenses in the meantime, they can accumulate their unclaimed reimbursement allowance and use it towards their larger expenses later in the year.
Plus, if an unexpected medical expense does arise, such as a broken bone or emergency room visit, the employee can use their accumulated balance to cover the cost without having to worry about exceeding their monthly allowance. Overall, the ability to roll over unclaimed reimbursement allowance month to month provides flexibility and peace of mind for employees enrolled in the QSEHRA benefit.
For example, let's say you have a few months with minimal expenses and have accumulated $500 in unclaimed reimbursement allowance. If you have a medical emergency that requires a $700 expense, you can use the balance of $500 along with your monthly allowance to cover the expense.
However, it's important to remember that the QSEHRA is not a savings account and the rollover amounts are only for reimbursement purposes. Any unclaimed allowance at the end of the calendar year will be lost, so it's best to keep track of your expenses and submit your claims as soon as possible.
Here's a helpful example to drive the point home.
Jessica is entitled to $300 per month in tax-free health reimbursements. Her company has set up the HRA to reimburse her for both monthly premiums and additional medical expenses. Her monthly premium is only $150 per month, and she has not had any additional medical expenses (prescriptions, doctor visits, etc.) for three months. That means that for three months, she has accumulated $450 in unclaimed reimbursements.
The next month Jessica had to go to the dentist and pay for some fillings out of pocket. She can apply the $450 in accumulated unclaimed reimbursements towards her dental bill.
Remember, QSEHRA is a reimbursement tool, not a savings account.
Can QSEHRA allowance rollover?
The rollover amounts are allowances that can only be claimed for reimbursement, there are no options for a cash payout of unused funds. At the end of a calendar year, any unclaimed allowance will be lost so it is best to save your receipts and enter your expenses as soon as you can!
More helpful QSEHRA resources
Looking for more information on your new benefit? We have several resources written for employees to better understand their new benefit! Our employee guide and our blog on how to submit an expense claim are great places to get started!
Make sure to check out the reimbursement rules chapter in our handy QSEHRA guide for more helpful tips!
Still have questions? Our team would be pleased to help.
This post was originally published in 2018 and has been updated in 2023 to reflect policy changes and regulatory updates.
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!