QSEHRA

What your CPA wished you knew about tax benefits of HSAs, QSEHRA

by Amy

As a small business owner, you’ve probably googled things like “tax breaks for small businesses” or “how to afford to start a small business” or “how to attract employees without expensive group plans.” You’ve probably googled all kinds of things or asked Siri, because that’s simply the way people access information these days—for better or for worse.

With a lot of incorrect information on the world wide web, your accountant probably would prefer you leave Google out of this.

Well here’s some good news. We’ve explained how two of our favorite tax-advantaged strategies work for small businesses and startups to save money on healthcare expenses. Everything you need to know is right here, all in one easily accessible place. Let’s dive in. 

How to Reimburse for Premiums Tax-Free

To cut quickly through the confusing jargon that floods the insurance industry, a QSEHRA is a “Qualified Small Employer Health Reimbursement Arrangement” that allows small employers and startups 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. In other words, 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. For small businesses or those just starting out, this presents significant cost savings and a way to offer “big company” benefits they can afford. 

Here’s what to know about the QSEHRA: 

  • It’s smart. Contributions to QSEHRA are tax-free. You aren’t paying payroll tax and your employees aren’t paying income tax.
  • It boosts recruitment and retention. Millennials and job seekers list health insurance as the number one benefit they look for when considering a new job. Competitive benefits and the ability to choose their own plan that works best for their needs will help you attract and maintain the best and brightest.
  • It saves time. You have better things to do than comb through group plans trying to make a decision everyone will like. They won’t, by the way. You can’t please everyone. Plus, administering group plans take a lot of time. Take Command Health’s QSEHRA platform onboards employees, generates plan documents, ensures that you remain compliant, and makes tax time a breeze.
  • It’s predictable. Unlike a group plan that might creep up in costs each year, you control the contribution amount based on what you can afford. If there are leftover funds, they return to you, as opposed to an HSA where the funds stay with the employee. Also, instead of pre-funding the accounts, you just have to pay up when an employee submits an expense. 
  • It’s flexible. QSEHRA design has a lot of built in levers to pull to ensure that you get what you want out of it. You can choose to just reimburse for premiums, or premiums plus qualified medical expenses, and scale the contributions based on age, status, or family size as long as it’s fairly administered.

Take Command Health’s new QSEHRA Guide dives into further detail if you’re interested.

How to Score Triple Tax Benefits on Healthcare Expenses

Unlike a QSEHRA which is an arrangement, a Health Savings Account (HSA) is an account. Both tools help users save money on health insurance and make financially smart decisions, but their outcomes are different. HSAs are designed to grow, much like a 401(k) for healthcare, and are only available to those who sign up for the increasingly popular high deductible plan.

HSAs offer a tax-free way to put aside money for short- and long-term health expenses, both expected and unexpected. It’s basically like getting a 25% discount on your health expenses, depending on your tax bracket. Unused funds stay in the account and grow tax free, available for healthcare costs in the future or for retirement needs once you turn 65.

Here’s how the tax benefits work:

  1. Contributions are tax-deductible.
  2. Contributions can be invested and grow tax-free.
  3. Withdrawals aren't taxed if you use them for qualified medical expenses like doctor's visits or prescription drugs.

Offering HSAs to your employees can be time-consuming and expensive without the right tools.

Lively’s HSA empowers business owners by offering an affordable platform, an easy-to-use and intuitive dashboard for submitting expenses, and a Lively Mastercard for qualified medical expenses—no minimums, no fine print, and no nonsense. While Lively is free for individuals to use, it only costs small business owners $3.50 per individual per month. 

QSEHRA and HSA

It’s easy to see why QSEHRAs and high deductible plans with HSAs are gaining momentum among savvy healthcare consumers across the country. You can even double up and offer both to your team, as long as your QSEHRA reimburses for premiums only. Your accountant is always a great resource, but Take Command Health’s QSEHRA Guide and Lively’s HSA Guide are great places to get started.

Picture of Amy

Hi, I'm Amy! I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!