Qualified small employer health reimbursement arrangements
Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) are a new, super beneficial, and incredibly user-friendly way for small businesses to offer flexible health insurance to their employees. With their tax-advantaged and individualized structure, employees can have coverage for health care related expenses that are unique to their own needs.
While we’ll go over this all below, here are the nitty gritty details up front:
- Employers reimburse eligible health care expenses. QSEHRA reimbursements options are outlined by annual eligible expense lists put out by the IRS.
- The IRS sets annual QSEHRA contribution limits. Take a look at QSEHRA employer contribution limits for 2023 here.
- The IRS makes the rules. Each year, the IRS puts out new regulations outlining legal requirements that must be followed by employers participating in a QSEHRA.
- Employer requirements must be met. While QSEHRAs are designed with flexibility in mind, there are a few key requirements that an employer must meet in order to participate in a QSEHRA.
- Set up is really that easy! Setting up a QSEHRA plan for your business really does not have to be a migraine inducer. Reach out to a QSEHRA plan administrator and rest assured they’ll take care of all legal requirements, onboarding, and maintenance along the way.
Employer reimbursement for health insurance premiums
Big questions these days are “How does health insurance reimbursement work?”, “Can I reimburse my employees for health insurance premiums?”, and “What are IRS rules for health insurance reimbursement? Don’t fret! Your fans at Take Command have got you covered.
How does health insurance reimbursement work?
It’s really as simple as setting up a QSEHRA plan and communicating that plan with your employees. After you submit your legal documentation and onboard your employees, they can get started submitting reimbursement requests!
Can I reimburse my employees for health insurance premiums?
Yep! Health insurance premiums are considered a QSEHRA eligible expense. You’re able to reimburse expenses each month that qualify as eligible expenses and fall within your predetermined budget.
What are IRS rules for health insurance reimbursement?
Well, read on!
While there are QSEHRA rules that need to be considered, there is an incredible amount of flexibility that gives employers the freedom to build a plan that works best for them and their employees. We’ve provided a brief overview below so you know what to expect. As always, if you have any further questions regarding QSEHRA rules, we’re here to help!
- Same Terms Requirements: A good rule of thumb is that all employees need to be treated fairly and offered the same benefits under your QSEHRA. An employer cannot offer different funds to different employees without qualifying them with specified criteria (family size, age, full/part time employment, etc.).
- Unclaimed funds: If an employee ends up not being eligible to participate in the company’s QSEHRA, the funds allocated will stay with the employer. Similarly, if an employee does not make a claim in a given year, the employer keeps the money.
- QSEHRA funding: A question we get asked a lot is “What is the source for funding a QSEHRA?” To keep the answer simple, the employer is solely responsible for funding the QSEHRA. Employees cannot contribute to a QSEHRA (they would just be paying for their health care expenses out of their own pocket).
It’s really that easy. The IRS has made regular adjustments to QSEHRA rules over the last few years to make it as accessible and efficient for all players involved- they want to get you and your business on board!
QSEHRA employer requirements
The IRS has two main QSEHRA employer requirements:
- Given that a QSEHRA is for qualified small employers, an employer must be small in order to participate. More specifically, a business is considered a “small employer” when they have less than 50 full-time employees.
- The main function of a QSEHRA is to reimburse individual health insurance. As such, the second QSEHRA employer requirement states that businesses cannot offer a traditional health care plan simultaneously. Note: this requirement does not speak to benefits like life insurance or disability insurance.
The IRS provides very clear outlines for their QSEHRA employee requirements:
- In order to meet the QSEHRA employee requirements, an employee must be covered by an insurance plan. Again, the purpose of a QSEHRA is to reimburse individual health related expenses. In order for a QSEHRA to serve its purpose, the employee needs to have a health insurance plan! While the IRS doesn’t go so far as to determine how an employee receives their coverage (through a parent, spouse, or their own independent plan), it does state that the employee must receive Minimum Essential Coverage (MEC) which can be provided by major medical plans, Medicare, Medicaid, etc.
- The second QSEHRA employee requirement is that employees must submit claims for reimbursement. As straightforward as this one seems, it’s an essential piece of the puzzle to ensure employees receive reimbursement for their expenses.
HRA vs. QSEHRA
Identifying the key differences between various health reimbursement arrangements is part of the process when selecting which plan will work best for you and your business. To keep it plain and simple- an “HRA for Dummies” if you will- let’s start by breaking down HRA vs. QSEHRA.
Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement is a tax-advantaged health expense option. When a business participates in an HRA, their employees are able to submit reimbursement requests to their employers for health insurance and approved out-of-pocket expenses. Each month, the employer funds an allowance that employees can use on health expenses that will benefit them individually.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
A Qualified Small Employer Health Reimbursement Arrangement follows the same overall structure of an HRA, but has a few distinguishing traits. QSEHRAs are specifically designed for small businesses of up to 50 full-time employees. It also has a predetermined maximum reimbursement limit for both single employees and employees with dependents.
Similar to the specifications of a QSEHRA, the biggest differences between various HRAs are related to:
- Eligible businesses
- Eligible employees
- Whether the HRA and group health insurance can be offered simultaneously
- Reimbursement limits
- Tax credits
Nonetheless, the IRS has worked hard to ensure there’s an option for most everyone! If you’re interested in seeing how your business might benefit from an HRA, our expert QSEHRA administration team is ready to answer your questions.
QSEHRA eligible expenses
Another big question (with one of the most exciting answers!) is “What can QSEHRA funds be used for?” We think you’ll be pleasantly surprised. Each year, the IRS revises and republishes the list of QSEHRA eligible expenses and reimbursement limits for that new year. As a business owner, it’s essential to have a solid understanding of what the QSEHRA eligible expenses are so your employees can take advantage of the funds available to them and maximize their benefits.
As you’re setting up your new QSEHRA, you, as the employer, need to complete an HRA plan document that outlines what’s reimbursable. Again, an integral part of facilitating a successful QSEHRA is having employees who can benefit from it!
For updated 2023 QSEHRA reimbursement limits and how they’ve changed over the last few years (hint: they’ve gone up!), read this!
For a comprehensive list of the most updated QSEHRA eligible expenses, check out this article!
Some big QSEHRA eligible expenses include:
- Medical diagnoses, cures, treatments, and preventions
- Personal care products
- Health insurance premiums
- Qualified long-term care services
- And many more!