If you own a small business or non-profit organization with less than 50 employees, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) might be a good healthcare plan option for you.
What is QSEHRA?
Also known as a small business HRA, the QSEHRA was established in 2016 as a quicker, more efficient HRA that allows small business to offer a standalone HRA again after the Affordable Care Act (ACA) limited these plans, deemed them unlawful, and placed daily excise taxes on employers with HRAs.
The QSEHRA does have a few setbacks, such as limits on how much employers can reimburse their employees and less flexibility than the Individual Coverage Health Reimbursement Arrangement (ICHRA) in offering different allowances to various classes of employees. QSEHRAs also restrict organizations from offering a group health plan as well, such as a flexible spending account (FSA) or SHOP coverage.
Nonetheless, if your employees have a wide array of health insurance policies and situations such as short-term, sharing ministries, Medicare, or utilizing a spouse’s or parent’s plan, a QSEHRA might be of more value to your team than an ICHRA.
How does QSEHRA work?
As a small business, you can set up a QSEHRA at any time. You’ll need to set your employees’ annual reimbursement allowances under the legal limitations outlined by the IRS each year. You can also offer different allowance amounts based on employee age and family size.
Once employees incur medical expenses like premiums, copays, and deductibles, they can submit a claim for reimbursement approval up to their monthly allowance and/or set up a recurring claim.
Reimbursements from the employer are payroll-tax-free and 100% tax-deductible. Employers can allow QSEHRA allowances to roll over each month and/or each year for their employees, so long as the reimbursements made never exceed the annual limit.
Full-time employees and their families are automatically eligible for QSEHRA reimbursements, and as the employer, you can determine whether you want to extend eligibility to your part-time employees as well. Keep in mind, your reimbursement allowances cannot differ between part-time and full-time employees with a small business HRA. Only participating employees with the minimum essential coverage (MEC) can receive their reimbursements tax-free.
QSEHRA plans offer many small businesses and their employees a number of benefits, including:
QSEHRA Benefits for Employers:
Cost Control: You set employees’ reimbursement allowances up to your organization’s maximum limit each year so you never go over budget.
Attract & Retain Top Talent: Offering QSEHRAs as a small business helps you stand out in the industry while attracting and retaining top candidates.
Payroll Tax Benefits: All reimbursements are tax-free for employers, and reimbursements are also 100% tax-deductible for employers.
QSEHRA Benefits for Employees:
Income Tax Benefits: Participating employees with MEC are eligible for income-tax-free reimbursements.
Delivers More Value: No matter if they are on a spouse’s plan, a sharing ministries plan, or even a short-term plan, employees can receive reimbursements through the QSEHRA plan.
Plan Flexibility: Employees have the freedom to choose the individual health plan that fits their lifestyles.
Cost Savings: QSEHRAs help to reduce out-of-pocket costs for eligible employees.
If you are still trying to determine if a QSEHRA is right for your small business or organization, give our local agents a call at PM Financial Group in Denver, Colorado. We can help you strategize a healthcare plan that delivers the most value to all of your employees collectively, no matter their individual circumstances. We look forward to speaking with you!