As a small business owner, you may be looking for ways to offer your employees health care options, but perhaps you aren’t sure if a small group health plan is the right fit—or you’re worried about what your business can afford.
An option worth exploring is the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which provides small businesses with the ability to help their employees access health care through tax-free reimbursements.
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What is a QSEHRA?
If you don’t already know what it is, read this QSEHRA Overview to understand the program. In short: QSEHRA is a Health Reimbursement Arrangement (HRA) that allows you to reimburse your employees for medical expenses or health insurance premiums. In order to participate, employees must have Minimum Essential Coverage (MEC) as defined by the Affordable Care Act and they must submit claims to their employer for reimbursements. Funded entirely by the employer, QSEHRA reimbursements are tax-free for the employer and employee.
Is my business eligible to offer employees QSEHRA?
In general, implementing a QSEHRA is pretty simple, but there are exceptions and it’s important to understand these requirements before you move ahead.
QSEHRA requires that you have less than 50 full time or full time equivalent (FTE) employees
This means that if you have part time employees, you must take into account the number of hours they work in order to calculate whether you qualify for QSEHRA. Use these step-by-step instructions to determine your FTE number.
You cannot offer a QSEHRA if you currently offer a healthcare plan
That means you must wait for your current plan to run out, or cancel it. You also cannot provide vision, dental, other HRAs, or Flexible Spending Accounts (FSAs). (However, QSEHRA requirements don’t treat former employees as employees, so if you provide a group plan to, say, retirees, you may continue to do so.)
You cannot offer a QSEHRA to employees who are not covered by a health insurance plan
As mentioned above, in order to be eligible for QSEHRA an employee must be covered by a health insurance plan that meets MEC requirements. This means that the employee would be covered by either a parent’s plan, a spouse’s plan, or the employee has purchased health insurance through the state marketplace.
Even if your business employs less than 50 full time or FTE workers, you may not qualify if you’re part of a group of employers that are counted as one
An example of this would be if you’re part of a controlled group—two or more companies with the same owner. In that case, if any company within the group of employers offers a health care plan to its employees, yours cannot start a QSEHRA. See the Q&A portion of this bulletin from the IRS to find details on what qualifies as a group of employers according to QSEHRA requirements, and go here for detailed definitions.
You are not eligible to start a QSEHRA if you’re an Applicable Large Employer (ALE)
This may sound obvious, as ALEs have more than 50 full time or FTE workers.
However, there is an exception for seasonal workers: if your company is larger than 50 employees for 120 calendar days or less a year, and those employees are hired on a seasonal basis (such as for retail work during the holidays) then you are not considered to have more than 50 workers.
It is also important to note that companies with a common owner may be an ALE, even if they would be considered small businesses alone, if their combined workforce is more than 50 full time or FTE workers. You can read more about the definition of an ALE here.
And finally, if a previously eligible company acquires enough employees to qualify as an ALE, they become so on January 1st of the next year and are no longer eligible to provide a QSEHRA.
What to do next
Ready to get started? Check out this post on how to set up a QSEHRA, including how to create your legal documents and create a process to run one.
Understanding the ins and outs of a QSEHRA, how to properly implement one, and stay compliant, can be challenging. We’re here to help; email us.