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What is QSEHRA? Everything Small Business Owners Need to Know
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Benefits Administration

What is QSEHRA? Everything You Need to Know

If your employees find themselves without healthcare coverage when they need it most, it can be a catastrophe. Many small business owners want to help but don’t know how. The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is one option that is growing in popularity and for good reason. The newly implemented QSEHRA gives employers and their employees access to tax-free health insurance premiums, funded by the employer. Interested? Here’s what you need to know.

What is QSEHRA?

QSEHRA is a specialized plan for small businesses that are unable to offer their employees a traditional group health plan. It allows employees who maintain minimal essential coverage to pay for selected medical expenses, including their insurance premium.

To be an eligible employer for a QSEHRA, a business must have fewer than 50 full-time employees (FTEs). The business also cannot offer any other health insurance coverage to its employees. This includes an individual health insurance policy or a group health plan.

How Does a QSEHRA Work?

A QSEHRA works by reimbursing employees for medical expenses incurred during the plan year. Employees can use the money to pay for health insurance premiums, out-of-pocket costs, and other qualified medical expenses.

To set up a QSEHRA, businesses must first choose a plan administrator. The plan administrator is responsible and ensuring that it complies with all applicable laws and regulations.

Once the plan administrator has been chosen, the business must then create a written agreement outlining the terms and conditions. New employees must then be sent written notification when they are eligible, and existing employees must have 90 days notice of the new plan year. It is important that they are informed of the open enrollment period in order to get their health coverage they need to qualify for the QSEHRA.

What Are the Rules for a QSEHRA?

There are a few rules that businesses must follow in order to offer a QSEHRA. First, an eligible employer must have fewer than 50 FTEs. Second, businesses cannot offer any other health insurance coverage to their employees. This includes group health plans and individual health insurance policies. The employees must have essential minimal coverage in order to qualify for a QSEHRA.

QSEHRA’s are not subject to the ACA’s penalties, but there is a chance they could be deemed non-compliant if you don’t follow all of these rules.

It is important for an employer’s HR department or compliance lead to know about the rules surrounding QSEHRA. One such account type would fall under what IRS Notice calls “non-compliant” HRAs–and these individuals could face $100 daily fines if their plan does not meet all requirements set out within this document.

Each employee must be offered the same terms. The employer contributions are the same for managers, and their employees. Business owners cannot give themselves larger allowances than they give their employees.

Always look at the IRS’s annual benefits cap. If someone starts mid-year, their amount is prorated, and they will get the amount allocated for each month during the remaining part of the year.

The employer’s contribution is 100%. Unlike a lot of medical benefits, there is no reduction in the employee’s paychecks, nor should pay be impacted if an employer is offering this benefit.

How to Manage a QSEHRA

A small business that offers a QSEHRA must manage the arrangement carefully. The small business must:

  • Ensure that the QSEHRA meets all IRS requirements
  • Designate a responsible individual to administer the QSEHRA
  • Track employee reimbursements
  • Submit annual reports to the IRS
  • Provide proof of coverage

What Are the Differences Between a QSEHRA and an HRA?

A QSEHRA is a type of HRA that has been created for small businesses, and is for those who do not provide a traditional group health plan.

The main difference between a QSEHRA and an HRA is that a QSEHRA is limited to small businesses, while an HRA can be used by businesses of any size. 

Health Reimbursement Arrangements (HRAs) for small eligible employers have been around for many years, but the QSEHRA is a new option that was created by the 21st Century Cures Act in 2016.

What Are the Limits for a QSEHRA IN 2022?

Due to the expected inflation in 2022, the IRS put together the Revenue Procedure 2021-45 which has the new spending limits for QSEHRA.

Self-only coverage 2022 limits are now $5,450/year ($454.16 per month), vs. $5,300/year in 2021.

Family coverage 2022 limits are now $11,050/year ($920.83 per month), vs. $10,700/year in 2021.

It is up to the employer if they decide to pay the full 2022 limit, or if they want to create their own limit that is less than the IRS limits. It is all employer-funded money that is tax-free.

If they want to carry over unused funds for employees who did not exhaust their QSEHRA the previous year, it still cannot go over the limit set forth by the IRS in a given year. Also, new employees can be offered this on a prorated basis if they begin at a different time of year other than the beginning of the plan year.

What are the QSEHRA benefits for your small business?

The cost of healthcare has been one of the major issues in America for quite some time now. With deductibles, co-pays, and prescription drugs all hitting our wallets hard every month it’s easy to see why so many people are relying on their benefits to help with the costs. Small businesses are no different, which is why the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) was created.

QSEHRA benefits can help its employees pay for a wide range of health care costs, including:

  • Medical expenses
  • Dental expenses
  • Vision expenses
  • Prescription

This can be especially helpful for businesses that are not able to offer health insurance coverage. This is great for single employees and seasonal employees because they can get help with their medical bills.

QSEHRA also offers some tax advantages. Employer contributions through reimbursement payments are not subject to payroll taxes. This can save your business a significant amount of money each year. Additionally, by offering a QSEHRA, a small business can show its employees that it cares about their well-being. This can be a great way to attract and retain top talent.

What Are the Key Differences Between QSEHRA and ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of HRA that can be used by businesses of any size to reimburse employees for the cost of individual health insurance premiums and other out-of-pocket medical expenses. Under the ACA, a QSEHRA can only be used by employees with minimal essential coverage. Unlike a QSEHRA, an ICHRA does not qualify for the small business health care tax credit.

If you’re a small business owner considering establishing a health reimbursement arrangement, be sure to consult with a qualified tax advisor to determine which type of HRA is right for you. If you have over 50 employees, then QSEHRA is not an option.

Paycor Can Help

By providing employees with a QSEHRA, businesses can attract and retain top talent, which can help improve the bottom line. Businesses also show employees that they are committed to their health and well-being, which can lead to increased loyalty. In addition, employees who have health insurance are more likely to be productive and miss less work due to illness.

If you need help offering health insurance options to your employees, let Paycor make the task much easier. Paycor’s Benefits Administration software can help you seamlessly get all of your people on board so you can get back to focusing on your HR strategy.

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