Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
Employers with less than 50 employees (qualified small employers or QSEs) can offer Health Reimbursement Arrangements (HRA) to their employees. While you are not allowed to offer a QSEHRA and a group insurance plan, QSEHRAs can:
- reimburse employees for health insurance coverage purchased on the individual market or through the health care exchange
- be paired with an employee spouse’s plan
- be used for out-of-pocket medical, dental, and vision expenses.
QSEHRAs are funded by the employer up to $5,300 for an employee who is single and $10,700 per employee with a family (2021 contribution rates).
Advantages of a QSEHRA
- Employer contributions to an employee’s account are not taxed for you or your employee. Reimbursements are also not taxed as long as the employee has a health plan that meets minimum essential coverage (MEC).
- Reimbursements may be made immediately when the employee becomes eligible to participate.
- Employees can purchase the health plan they want
- Employers can set the budget and include waiting periods
- Funds can carry over from year-to-year if allowed by the employer. An employee’s total benefit can’t exceed the annual contribution limit.
Employees must purchase a health plan that has minimum essential coverage (MEC), as stated by the Affordable Care Act (ACA). If your employee purchases health coverage that doesn’t qualify as MEC, they may be taxed and reimbursements from the QSEHRA may be included in their gross income.
Qualified health plans include: Marketplace plans, Medicare, Medicaid, CHIP, individual health plans with MEC (ask the insurance company if this plan matches a “qualified health plan”), retiree plans, and COBRA.
Unqualified health plans include: Coverage for vision care only, coverage for dental care only, workers’ compensation, coverage only for a specific disease or condition, and plans that only discount medical services.
For employees who obtain health insurance through a public exchange and qualify for subsidized coverage (tax benefit towards the plan), they must report the amount in the QSEHRA to the exchange. Their federal subsidy amount will be reduced by the amount of their benefit.
Your employer responsibilities include:
- Having a Plan Document
- Distributing a Summary Plan Description (SPD) within 90 days of your employee becoming a plan participant
- Not sponsoring any other health, dental or vision plan
- Providing a QSEHRA to all eligible employees (if you have more than one employee) under the same terms and employees can’t waive participation in the QSEHRA
- Providing all eligible employees with a written notice 90 days prior to the start of the plan year
- Obtaining proof that employees have minimum essential coverage with each reimbursement and on an annual basis
- Substantiating all reimbursement claims
- Reporting the employee’s permitted benefits in box 12 of their Form W-2 using code FF
Health Benefit Options Comparison Chart
This chart will help you compare the various plans and select one that will best meet the needs of your employee.
|Employer tax savings|
|Employee tax savings|
|Covers out-of-pocket expenses|
|Covers insurance premiums|
|Used to purchase health insurance|
|Contribution limits||$2,750||No limit||$3,550 single
|No limit||No limit|
|Pairings||N/A||Group plan||High-deductible plan||Individual plans||N/A||Group plan|
|Coverage restrictions||None||Must cover at least two employees||None||None||None||None|
Setting up a QSEHRA with GTM Payroll Services is easy and straightforward. Our insurance team will guide you through the entire process. Call (800) 929-9213 for more information or to get started.
Looking for some other health benefit ideas? Check out these options.
Household Employee Benefits & Insurance
- Health Insurance
- Dental & Vision Benefits
- Virtual Medicine
- Small Employer HRAs (QSEHRA)
- Individual Coverage HRAs (ICHRA)
- Health Reimbursement Arrangements (HRA)
- Flexible Spending Accounts (FSA)
- Retirement Plan
- Workers' Compensation Insurance
- Travel Insurance
- Employee Dishonesty Insurance
- Additional Insurance Options
Talk to an Expert
Our employee benefits experts are available to discuss your needs and help you get started with a Health Reimbursement Arrangement or other benefits.