Employers have been helping employees with healthcare costs since employer-sponsored insurance coverage began about 80 years ago. But just as healthcare costs have risen, the costs of insurance and healthcare benefits have increased as well. Small businesses have always found it financially challenging to offer group benefits to their employees. Fortunately, Congress and regulatory agencies are finally taking notice.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) were created by the 21st Century CURES Act in December 2016. The Kaiser Family Foundation recently found that only 58% of small employers offer health benefits to their employees, compared to 99% of large employers. For those who do, though, QSEHRAs are making a difference. According to PeopleKeep’s 2022 QSEHRA Annual Report, 9 out of 10 employers who sponsored a QSEHRA plan in 2021 had not offered any health insurance benefit at all prior to the QSEHRA.
With recent changes in the job market and employee priorities, offering health benefits can be vital to attracting and keeping a talented workforce. Significant benefit plans can also help generate higher worker satisfaction, which normally results in more productive, invested employees.
What is a QSEHRA?
The Qualified Small Employers Health Reimbursement Arrangement (QSEHRA) is designed to help employers with 50 or fewer employees who do not offer any other group health plans. Under a QSEHRA, eligible employers can reimburse employee premiums for individual health insurance plans bought on the open market, as well as other qualified medical expenses. Eligible insurance policies must meet Affordable Care Act-mandated minimum essential coverage requirements (MEC).
What does a QSEHRA cover?
A QSEHRA can cover the cost of certain healthcare expenses, including health insurance premiums and deductibles or co-insurance. Unlike some benefit accounts, QSEHRAS do not come with a debit card for convenient purchasing. Instead, employees must first pay their insurance company or healthcare provider and then submit proof of coverage and payment to the QSEHRA for reimbursement. No reimbursement is made if an employee fails to submit a claim with appropriate documentation.
How are QSEHRAs funded?
QSEHRA accounts are entirely funded by the employer, who receives a tax deduction just as they would if providing a traditional group insurance plan. Employees are not taxed on reimbursements received from the QSEHRA plan. Still, they cannot “double-dip” (i.e., take a tax deduction for insurance premiums or medical expenses already reimbursed by the QSEHRA), and employers must include information on QSEHRA benefits on employee W-2 forms.
Do QSEHRAs have a limit?
Unlike traditional HRAs, QSEHRAs have annual reimbursement limits. For 2023, employees with individual coverage may receive a maximum reimbursement of $5,850 annually, while those with family coverage may receive up to $11,800 annually.
Do employers have to offer the QSEHRA to all employees?
Most, but possibly not all. The Internal Revenue Service (IRS) has ruled that employees may be excluded from QSEHRA coverage if they meet one or more of these conditions:
- The employee has not yet worked for the employer for 90 days.
- The employee has not yet reached 25 years of age.
- The employee’s employment status is part-time and seasonal.
- The employee is covered by a collective bargaining agreement in which accident and health benefits were the subject of good faith bargaining.
- The employee is a non-resident alien with no earned income from U.S. sources.
Do COBRA rules apply to QSEHRAs?
Since QSEHRAs are not group health insurance plans, they do not qualify for COBRA continuation of coverage following termination.
How do I start a QSEHRA?
Unlike traditional group health insurance, QSEHRAs are not restricted by open enrollment periods and can be established at any time. Once an employer decides to proceed with a QSEHRA program, they must provide a written notice to eligible employees 90 days before starting the first plan year (and before each successive plan year). Details on IRS requirements for that notification can be found here, but from a high level, it must include:
- The amount the employer will be funding into the QSEHRA account
- The need for the employee to report the availability of QSEHRA funding to the Healthcare Exchange if applying for a subsidy
- The requirement that employees enroll in an individual health plan that meets MEC requirements to receive premium reimbursement from the QSEHRA
If you are a small employer with 50 or fewer employees, sponsoring a QSEHRA can be a cost-effective way to help your employees obtain health insurance. Contact DataPath Administrative Services today for more information.
DataPath Administrative Services is Arkansas’ leading provider of third-party benefits administration services, including FSA, LPFSA, DCFSA/DCAP, HSA, HRA, ICHRA, EBHRA, QSEHRA, Commuter/Traffic/Parking, Lifestyle Spending Accounts (LSA), and COBRA.