QSEHRA (pronounced “Q-Sarah” for fun) is a more efficient way for small businesses and non-profits to offer health insurance to their employees. The reimbursement model is changing the way small businesses offer insurance. It’s a game-changer that many are just now discovering. Let’s dive right into this exciting acronym and answer the question, “What is a QSEHRA?”
What is a Qualified Smaller Employer HRA (QSEHRA)?
The Qualified Small Employer HRA, sometimes called a Small Business HRA or a defined contribution model or 401(K) style benefits, is a type of standalone HRA that was created in 2016 as a provision of the bipartisan 21st Century Cures Act and signed into law by President Obama. It is designed to help small business owners afford health insurance for their teams—often a major challenge due to rising premiums and participation rates.
As a health reimbursement arrangement, the QSEHRA allows employers (with 50 employees or less) 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 small business health insurance 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.
The general idea is this: employers simply reimburse employees when a health expense occurs. There is no pre-funding of accounts. If employees don't submit receipts for reimbursement or do not need medical care, the leftover funds stay in the employer's pocket.
How does a QSEHRA work?
The mechanics of a Qualified Small Employer HRA are surprisingly simple.
- Employers design their plan and set reimbursement allowances (setting up a small business HRA is quick and painless)
- Employees pay for their own health insurance and medical bills
- Employees provide proof of their expenses
- Employers reimburse the employee up to the set limit
- Employers outsource certain administrative functions like compliance and reporting (that's where Take Command Health comes in)
What are the benefits of a QSEHRA?
- Leveling the playing field in recruitment: They allow small business owners a way to offer competitive (yet affordable) benefits packages and compete with the fancy benefits packages that larger corporations enjoy with the same tax benefits.
- Budget predictability & cost control: Small businesses aren't positioned well to withstand spikes in insurance premium payments, and the amount each small business can afford varies. QSEHRA solves both of these problems. If you want to hear more, see how our clients are using their HRA to survive the fallout of the COVID-19 pandemic.
- Tax-advantaged: QSEHRAs represent a new, superior model of health benefits, largely in part because of the tax-advantaged nature of HRAs and the streamlined approach to benefit budgets. You can calculate your tax savings with our QSEHRA tax savings calculator.
- Optimized for best value: There are a lot of levers employers can pull to make their QSEHRA work for their budget. In addition to choosing a monthly budget and enjoying the predictable costs that come with it, you have the option of scaling based on marital status or age, and whether or not to include part-time or seasonal workers.
- Portability & personalization: Employees get to choose the plan that works for them, and they can take it with them when they leave.
Is a QSEHRA right for your business?
There are a few factors to consider when deciding on benefits for your company. If you are planning on growing, it's good to have a benefits plan in place. While the QSEHRA only works for businesses under 50 employees, when you hit 50 employees, there is another HRA called an Individual Coverage HRA that will allow you to continue to reimburse employees in a similar way.
Certain markets are better set up for widespread adoption of small business HRAs. Things to consider are how many carriers are in your area, what the premium trajectory has been, or what the average premium costs are.
If you're ready to get started, setting up a small business HRA is a breeze! Our team is here to help clear up any confusion surrounding small business health insurance options. Don't hesitate to give us a shout via our chat feature on the website. We would be happy to help.