What are QSEHRAs?
For many small businesses, staying afloat during the COVID-19 pandemic has been hard enough. Employers have had to face the threat of their employees getting sick as well as the threat of their doors being closed for good. The severity of COVID-19 leaves small business owners looking for ways to support their employees with healthcare, without having the funds to offer full medical benefits. QSEHRAs are a way for small businesses to bridge that gap.
Defined: What are QSEHRAs?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) allows small employers to contribute to their employees’ health care expenses by providing non-taxed reimbursements to employees who maintain minimum essential coverage. QSEHRAs are generally used by small companies with less than 50 full-time employees that don’t offer a group health plan.
According to HealthCare.gov, in order to qualify for a QSEHRA, a small employer must meet the following guidelines:
- Provide the arrangement on the same terms for all full-time employees (reimbursement amounts may only vary based on age and the number of individuals covered)
- Not already offer a group health plan or flexible spending account (FSA)
- Have less than 50 full-time employees
What are the Benefits of a QSEHRA?
Essentially, QSEHRAs are a tax-free way for employers to offer benefits without the hassle that a traditional group plan usually involves while allowing employees to choose the right plan for them. Other benefits include:
- More flexibility for employees to choose their own insurance plan
- More flexibility for employers to decide how much to contribute—with QSEHRAs, there aren’t minimum contribution rules or participation levels that have to be followed like traditional plans
- Since QSEHRAs work as reimbursements, if the employee doesn’t use the maximum contribution amount, the employer keeps the money that isn’t spent
- When setting up a QSEHRA for their small business, employers can choose what expenses they’ll reimburse, whether it’s just insurance premiums or premiums and medical expense
How Do QSEHRAs Work?
Employers can decide the amount they’d like to contribute to their employees’ medical costs up to the maximum annual amount. They also decide what medical expenses are reimbursable for their employees.
When employees go to the doctor or pay for a reimbursable expense, they will pay their health care provider or insurance company directly for their health care costs. After that, they’ll submit a receipt or proof of payment and receive tax-free reimbursement by the QSEHRA.
The following table shows the employer contribution limits for both employees and employees and their households for 2020 and 2021:
|Year||Maximum employee only contribution||Maximum for employees & households|
|2020||$5,250 ($437.50 monthly)||$10,600 ($883.33 monthly)|
|2021||$5,300 ($441.67 monthly)||$10,700 ($891.67 monthly)|
How Do Employers Set Up a QSEHRA?
Employers who set up QSEHRAs must first think about their plan design, including reimbursement rates and what expenses your employees can be reimbursed for. The next step includes working with a partner to draft plan documents that are required for maintaining compliance.
Once a small employer has designed the plan and set up necessary plan documentation, it’s time to set a start date. Employers can set up a QSEHRA at any time, but may want to time it in accordance with the individual market’s Open Enrollment period. It helps to begin a few weeks before the enrollment period so that employees have enough time to research plan options.
Finally, employers need to send a written notice to employees as soon as they’re eligible and 90 days before the beginning of each plan year. The written notice must include certain information, which can be found on the IRS website here.
In order to qualify for participation in the QSEHRA, employees must have qualifying health coverage, which is any plan that meets coverage requirements for the Affordable Care Act standards. Depending on the QSEHRA amount an employer provides, employees may be eligible for some or no tax credit with their individual Marketplace coverage.
Employers should talk with a health insurance broker or agent before changing existing coverage or offering QSEHRAs to see if they’re right for their organization.
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