While this may be called a QSEHRA for Dummies post, we recognize that QSEHRAs are complex and can be confusing. That's why we've put together all the high level points you need to know.
QSEHRA for Dummies
The Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA for short, is a tax-advantaged tool that allows small businesses with less than 50 employees to reimburse their team tax-free for health expenses. While relatively new, it's easy to see why small business owners are choosing to reimburse over one-size-fits-all, expensive group plans.
What is a Qualified Small Employer Health Reimbursement Arrangement?
The Qualified Small Employer HRA, sometimes called a Small Business HRA or a defined contribution model or 401(K) style benefits, is a type of standalone HRA that was created in 2016 as a provision of the bipartisan 21st Century Cures Act and signed into law by President Obama.
You read that right - it's bipartisan!
It's designed to help small business owners afford health insurance for their teams—often a major challenge due to rising premiums and participation rates. Since it was created, it has grown in popularity and was even extended to businesses of all sizes through another HRA called the Individual Coverage HRA.
Is a QSEHRA a pre-funded account?
As a health reimbursement arrangement (not an account), employer simply reimburse employees when a health expense occurs. There is no pre-funding of accounts. If employees don't submit receipts for reimbursement or do not need medical care, the leftover funds stay in the employer's pocket.
How does the Qualified Small Employer Health Reimbursement Arrangement work?
The logistics of a Qualified Small Employer Health Reimbursement Arrangement are fairly simple.
Here is the general idea:
Step 1: See if you are an eligible employer. Your two criteria? You have to be small, with less than 50 Full Time Equivalent employees. You also can't offer a group plan at the same time.
Step 2: Set up a small business HRA and communicate your QSEHRA to your employees. Engage a third party HRA Administrator like Take Command to do all the heavy lift for you.
Step 3: Design your QSEHRA by deciding how much to reimburse per month. You can scale the benefit by age and family size, but it has to be offered equally to all employees (a key differentiator from ICHRA). You can play around with our QSEHRA plan designer tool to see what your monthly costs would be.
Step 4: Your employee(s) will choose a qualified medical plan that meets Minimum Essential Coverage requirements and aligns with their needs, their doctors, and their prescriptions.
Step 5: Your employee will then submit a receipt for monthly premiums, a doctor's visit, lab work, a prescription refill, or a qualified medical expense. As a business owner, you can decide whether you will reimburse for insurance premiums and medical expenses or just insurance premiums. You'll just need to tell your team ahead of time.
Step 6: You pay them back. Super simple.
What are the top benefits of Qualified Small Employer HRAs?
We are definitely QSEHRA enthusiasts over here at Take Command, so we will just give you our top five favorite things about QSEHRA instead of all of them. The list is simply too long.
QSEHRAs are awesome because...
- Leveling the playing field in recruitment: They allow small business owners a way to offer competitive (yet affordable) benefits packages and compete with the fancy benefits packages that larger corporations enjoy with the same tax benefits.
- Budget predictability & cost control: Small businesses aren't positioned well to withstand spikes in insurance premium payments, and the amount each small business can afford varies. QSEHRA solves both of these problems. If you want to hear more, see how our clients are using their HRA to survive the fallout of the COVID-19 pandemic.
- Tax-advantaged: QSEHRAs represent a new, superior model of health benefits, largely in part because of the tax-advantaged nature of HRAs and the streamlined approach to benefit budgets. You can calculate your tax savings with our QSEHRA tax savings calculator.
- Optimized for best value: There are a lot of levers employers can pull to make their QSEHRA work for their budget. In addition to choosing a monthly budget and enjoying the predictable costs that come with it, you have the option of scaling based on marital status or age, and whether or not to include part-time or seasonal workers.
- Portability & personalization: Employees get to choose the plan that works for them, and they can take it with them when they leave.
Want to learn more about reimbursing employees for health insurance?
Our team is at the ready to help you. Just chat with us on our website. You can also dive into a few helpful resources including:
