To set up a QSHERA, a small business must meet two QSEHRA requirements to be eligible. The employer QSEHRA requirements are:
- Be “small”: The business or non-profit must be a “small employer” in the eyes of the IRS, meaning it must have 50 or fewer full-time employees to meet QSEHRA eligibility.
- Not have a group health plan: The small business or non-profit cannot have a traditional group health plan.
To qualify for QSEHRA tax-free reimbursements, employees must meet two QSEHRA requirements to be eligible:
- Have individual health insurance coverage. Plans must provide Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g).
- Submit claims for reimbursement. Employees need to prove their expenses met the QSEHRA requirements for qualified health expenses.
ICHRA vs QSEHRA
ICHRA and QSEHRA are both awesome tax-advantaged tools to consider when searching for a small business health insurance solution for your company. There are a few key differences, like what kind of business qualifies, reimbursement limits or maximums, employee eligibility, and more. Here’s a helpful blog complete with a side-by-side comparison of ICHRA vs QSEHRA.
See the chart ICHRA vs QSEHRA.
QSEHRA pros and cons
There are always upsides and downsides to consider when deciding which healthcare plan to choose. It really depends on the specifics of your situation and the plan you choose. Let’s review some of the general pros and cons of QSEHRA plans.
In a nutshell, there are way more pros than cons to QSEHRA. Here’s a few.
- Tax efficiency
- Flexible design
- Budget control
- Optimized benefits
- You can get out of the health insurance risk management game
Advantages of QSEHRA plans:
Cost savings: Employers control how much is spent on health coverage and decide the maximum reimbursement allowances. And any unused HRA account funds can roll over at the employer's discretion annually; otherwise, the funds stay with the employer.
Tax advantages: Tax benefits for employers and employees. Employers can deduct reimbursements made to employees through QSEHRA, reducing their overall tax liability. And reimbursements given to employees through QSEHRA are not considered taxable income, so employees won’t have to pay taxes on reimbursements.
Greater plan flexibility: Employers can customize the plan and choose the type of coverage they want to offer, the amount of the reimbursement, and the eligibility requirements. Employers can also choose to offer different levels of coverage to different classes of employees.
Health benefit choice: Employees choose the individual plans and doctors that work best for them and can use QSEHRAs for medical and dental expenses, prescriptions, annual exams, birth control medications, and more.
Risk de-management: Employers no longer need to worry about factoring managing employees’ health risks into the business strategy.
Plan portability: Employees can keep their individual health insurance plan and don’t have to lose health coverage tied to a specific job.
ACA compliance: QSEHRA also helps employers comply with the Affordable Care Act (ACA). The plan meets the ACA’s minimum requirements for employer-sponsored health plans, allowing employers to avoid potential penalties.
Administration simplicity: QSEHRA doesn’t require employers to manage a large group insurance plan, which can save employers time and money by streamlining their administrative processes.
Potential QSEHRA Disadvantages
Non-transferable funds: QSEHRA funds stay with the employer if the employee leaves the company. The good news is that the employee keeps the health insurance plan they selected.
Cosmetic procedures not covered: Elective cosmetic procedures like teeth whitening aren’t covered. Most group plans don’t cover elective cosmetic procedures, either.
Limited coverage: Provider options may be limited based on the insurance market per geographical region.
QSEHRA eligible expenses
When you set up your QSEHRA, you’ll want to ensure your employees know what qualifies for QSEHRA reimbursement. QSEHRA-eligible expenses include a variety of things that 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, as long as the employee has minimum eligible coverage (MEC). Make sure that the expenses follow the guidelines by IRS Publication 502 Medical and Dental Expenses.
Here’s a full list of QSEHRA-eligible expenses for employees in 2023.
How to set up a QSEHRA
When you work with a QSEHRA third-party administrator like Take Command, we ensure your QSEHRA administration is straightforward and simple. Sure, you could do a self-administered QSEHRA, but without a skilled HRA administrator in your corner – that includes things to make it easy on you, like QSEHRA administration software and QSEHRA plan document template – you’re in for a lot of work and headaches.
So, pro tip, go with a QSEHRA third-party administrator when thinking about how to set up a QSEHRA.
Here’s how to set up a QSEHRA.
Employees select their preferred health insurance plan, pay for health care expenses upfront then the employer reimburses them. Employers can offer health care benefits without being tied to a group plan and employees gain control of where they spend their money and chose the providers that they want.
How to set up QSEHRA in 4 simple steps
- The employer designs their QSEHRA plan. Pro tip – it’s even easier when you work with an experienced partner like Take Command.
- Employees purchase their preferred health insurance plan. Take Command even helps them do it and makes it super easy with tons of employee resources, including our window shopping tool.
- After employees purchase their plans of choice, they can then submit eligible reimbursement claims to the employer.
- The employer reimburses employees for all valid reimbursement claims.