Q: What Is a QSEHRA?

Just before President Obama left office, he signed into law the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

QSEHRA is an Affordable Care Act-compliant plan that gives businesses with fewer than 50 full-time employees the option to provide Health Reimbursement Arrangements (HRAs) to their employees instead of offering group health insurance plans.

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How does a QSEHRA work, exactly?

Think of a QSEHRA as an HRA for small businesses.

You can only offer QSEHRA plans to your employees if you don’t offer them a group health plan.

QSEHRA does not replace health insurance, however. To participate in a QSEHRA, your employees must get health insurance coverage on their own either through the individual health insurance market or through another employer-sponsored plan.

Employees covered by a QSEHRA can be reimbursed for qualified medical expenses—up to $5,150 per year for employee-only coverage, and up to $10,450 per year for family coverage. You can also reimburse them for the cost of health insurance premiums purchased on the open market.

QSEHRA benefits are tax-free to employees and are funded entirely by employers. 

Which medical expenses are eligible for QSEHRA?

Eligible expenses are based on guidelines set by the IRS. Eligible expenses typically include:

  • Office visits
  • Lab work
  • Prescriptions and surgery
  • Health insurance premium costs
  • Longterm care coverage
  • Healthcare-related transportation costs

That said, employers may choose to narrow the range of eligible expenses covered. 

Are all employees eligible?

Full-time employees who have the minimum essential health coverage required by the ACA are eligible for QSEHRAs.

When it comes to part-time or seasonal employees, employees who have not completed 90 days of service, and employees under the age of 25, it’s up to you whether to make them eligible for your QSEHRA offering.

Can medium and large employers offer QSEHRAs?

No, medium and large employers can’t offer them. QSEHRAs are unique to small businesses with fewer than 50 full-time equivalent employees. Medium and large employers can only offer HRAs alongside group health plans such as HMOs and PPOs.

Previously, standalone HRAs were considered unlawful by the ACA, but the creation of the QSEHRA has made it possible for small businesses to provide them as an alternative to group plans and get a tax break for doing so.

Do QSEHRA benefits count toward an employee’s gross income?

Since QSEHRAs are funded solely by the employer, a QSEHRA does not count toward an employee’s gross income as long as the minimum essential coverage requirement is met.

Are there requirements for offering QSEHRAs?

QSEHRAs offer small business employers a compelling alternative to group health plans. That said, it’s not about just throwing money at employees.

These arrangements must be properly documented, disclosed, and administered according to set rules and procedures. If you think a QSEHRA is right for your business, keep in mind that you must offer them to all full-time, regular employees on the same terms.

Still have questions?

Notice 2017-67, which was published by the Internal Revenue Service in October 2017, contains 79 questions and answers relating to QSEHRAs in a 59-page document. Revenue Procedure 2018-57 contains updates and adjustments for 2019.

Have a question about QSEHRA? Email askqsehra@gusto.com and a member of our team can help.

Michael Hill
Michael Hill Michael Hill is a freelance writer and a research analyst at 451 Research.

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