Providing health benefits is one of the most important ways small businesses can attract and retain top talent. However, for many small employers, the financial burden of offering traditional group health insurance is a consequential barrier. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a flexible, cost-effective solution that helps small businesses provide their employees with valuable healthcare benefits without breaking the bank.
What Is a QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a type of health benefit that allows small employers to contribute to their employees’ health care expenses on a tax-free basis.
According to HealthCare.gov, in order to qualify for a QSEHRA, a small employer must meet the following guidelines:
- Have less than 50 full-time employees.
- Provide the arrangement on the same terms for all full-time employees exclusively
- Not already offer a group health plan or flexible spending account (FSA)
Essentially, QSEHRAs allow small employers to offer health benefits without acquiring the financial stress that coincides with high cost group plans. Similarly, with a QSEHRA, employers can set a fixed amount to reimburse employees for health-related expenses each year. This means no surprises. Employers should know exactly how much they’ll be spending on healthcare benefits, which helps with budgeting.
Employees benefit from QSEHRA because the reimbursement payments they receive are tax-free, so they don’t have to pay taxes on the money they receive. Additionally, QSEHRAs provide employees with more flexibility. With this offering, employees are empowered to investigate various health insurance plans instead of being stuck with a one-size-fits-all employer plan. Additionally, employees can use a QSEHRA to get reimbursed for a more comprehensive list of medical expenses, not just insurance premiums.
QSEHRA Contribution Limits
Employers decide the amount they’d like to contribute to their employees’ medical costs. The Internal Revenue Service (IRS) sets a maximum amount that employers should not exceed. This set amount is referred to as a contribution limit. The maximum is reevaluated annually.
Once the contribution limit is set to comply with the IRS regulations, employees pay for their medical expenses upfront. Then, they must submit receipts or proof of payment to their employer who then approves the expense and provides the tax-free reimbursement.
The following table shows the employer contribution limits for both self-only employees and employees with households for 2024 and 2025:
| Year | Maximum self-only employee only contribution | Maximum for employee with family contribution |
| 2024 | $6,150 ($512.50 monthly) | $12,450 ($1,037.50 monthly) |
| 2025 | $6,350 ($529.17 monthly) | $12,800 ($1,066.67 monthly) |
How Do Employers Set Up a QSEHRA?
Employers who set up QSEHRAs must first think about their plan design, including reimbursement rates and selection of medical expenses eligible for reimbursement. Employers elect to which services they agree to cover. These services can include amenities such as doctor’s visits, prescriptions, medical devices, and dental work. The next step includes working with a partner to draft a plan document that outlines the details of the QSEHRA they plan to offer.
Once a small employer has designed their plan and created necessary plan documentation, they must notify their employees of the benefit offering at least 90 days before the beginning of each QSEHRA plan year. 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.
Once employees begin enrolling in QSEHRAs, employers must verify that enrolled employees have qualifying health coverage, which is any plan that meets coverage requirements outlined by the Affordable Care Act. Essentially, this includes plans purchased through the Health Insurance Marketplace or plans offered by a spouse.
Lastly, employers may decide if they want to use a plan administrator to manage QSEHRAs. Third party administrators (TPAs) can manage all the paperwork, receipts, and reimbursements to ensure employer compliance with tax laws.
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