How I Learned I Needed a QSEHRA
Here's a little backstory. As most of you know, in addition to PT Money, I'm also the CEO of FinCon. Thankfully, FinCon has been growing! But like any small business, we've run into growth pains. A big one was health insurance – I couldn't recruit the right people to my team without accounting for it in some way, but it seemed like such a big headache and expense.
That's when we learned about a new option called a QSEHRA. It's lean, it's flexible, it's tax-advantaged, and it's budget-friendly. A QSEHRA allows small businesses to set aside a fixed health allowance each month that employees can then use for their own individual health insurance or medical expenses.
QSEHRA is pretty new, but I think it’s going to take-off and I’d recommend any small or growing business take a look at it.
Michael Kitces has a great write up on them. Health Reimbursement Arrangements (HRAs) have been around forever. This is a new flavor of HRA that was created at the end of 2016 through bipartisan legislation called the 21st Century Cures Act.
A new startup company, Take Command Health, pitched the idea last year and won 2nd place in our pitch competition for their idea. They’ve put together an excellent guide that explains how a QSEHRA works.
Bottom line: with the QSEHRA I could offer the benefits my employees needed without administering a clunky group plan. We signed up to let Take Command Health handle the arrangement and have been using a QSEHRA for about a year now.
I'm paying $600 to three employees so they can reimburse their premiums. Two of the employees are single (eligible for $150) and one has a family (eligible for $300). One employee has yet to sign up for the benefit.
In total, I pay $92 a month for this service. $15 per employee for the HRA and the additional $15 per employee for the Business Smart Plan. I may eventually turn that piece off since all of my employees use Medishare and receive most of these benefits already.
You'll notice I am not on the plan myself. That's because I claim S-Corp status when I file my taxes and I'm the owner. I can't participate. But I can still deduct my own health care costs. So, no biggie.
The Advantages of a QSEHRA
Let's break down the pros here to see if the QSEHRA might be right for you.
It’s tax-efficient. Before we signed up for QSEHRA, we had come up with a common workaround solution: I was just adding an extra “health stipend” onto my employees’ salary for them to buy what they needed: health insurance premiums, medical sharing payments, general medical expenses, etc. The problem is that money gets taxed like income. A QSEHRA basically accomplishes the same thing as a health stipend but is tax-free. That can make a big difference. Consider a 10 person company offering a $300/month health stipend:
|
Taxes & Fees |
Taxable "Health Stipend" |
QSEHRA |
|---|---|---|
|
Reimbursement Amount |
$3,000 |
$3,000 |
|
Employee Income Tax (~25%) |
750 |
0 |
|
Employer Payroll Tax (~15%) |
450 |
0 |
|
Total Monthly Taxes |
$1,150 |
0 |
Boosts retention. Wondering what the number one factor is for millennials and job seekers considering a new job? You guessed it—health insurance benefits. Without a competitive benefits package, the best and brightest might choose to go elsewhere. Another perk for employees is that they can choose the best plan for them instead of being looped into a group plan that might not cover their doctors, their prescriptions, or their health needs.
Saves time. Selecting and administering a group plan takes a lot of time and effort. Choosing the right QSEHRA administration platform will save you time down the road as well. Take Command Health’s QSEHRA platform on-boards employees, generates plan documents, ensures that you remain compliant, and makes tax time easier.
Saves your budget. These costs are predictable. Unlike a group plan that might creep up in costs year after year, you control the amount contributed to a QSEHRA. It’s on your terms and within your budget. Wondering what happens to the leftover funds if they aren’t used? It stays with the business and doesn’t roll over. That means you aren’t responsible for funding a bunch of accounts; you only pay out when an employee submits an expense for reimbursement. Sweet deal!
It’s flexible. You can design your QSEHRA to fit your needs. Want to just reimburse for premiums like me? Great. Want to add qualified medical expenses to the deal? Even better. Want to scale the contributions based on age, status, or family size? You can do that too (as long as it’s fair!).
Disadvantages of a QSEHRA
Of course, it's not a perfect plan. Here are the down sides:
New and kind of confusing. I'm a CPA and I have trouble wrapping my head around some of the complexities involved with this arrangement. Thankfully, Take Command Health has both excellent education (setup guides and tax law coverage on their blog) and excellent support. When I have a question I simply email their support team and a response comes quickly – often times from their CEO, Jack Hooper.
Owners can't participate. As the owner of the company, I can't actually participate in the arrangement myself. I can still give myself this benefit (the healthcare reimbursement), but I can't deduct it using a QSEHRA. Thankfully, as the owner, I can deduct my own health insurance above-the-line on my personal return.
My Experience Setting Up a QSEHRA with Take Command Health
Once I wrapped my head around how the plan works, it was pretty easy to just let Take Command Health set it up! At a high level, there are a few agreements to sign, forms to prepare, and communication with the employees. Then, the Take Command Health dashboard and my payroll service take care of the rest.
The exact next steps were:
- Take Command Health – Create HRA legal documents.
- Me – Roll-out Plan: Provide Take Command my employees' contact information and personally introduce it while they handle the formal intro.
- Take Command Health – Send employees HRA info and onboarding form.
- Employees – Complete on-boarding form and provide proof of coverage (my employees use Medishare too.
- Employees – File for reimbursement.
Overall I'm pleased with how this arrangement has worked out. Because of their knowledge and customer service Take Command Health is a great company to use if you need a QSEHRA for your own company.
About Take Command Health
Take Command Health launched three years ago with the goal of bringing awareness, advocacy, and transparency to the confusing world of health insurance for small businesses and individuals. Take Command Health is at the forefront of this issue, a recognized leader in QSEHRA administration and small business HRA tax strategy, with customers in every state. It operates in Arizona, California, Florida, Georgia, Indiana, Michigan, North Carolina, Pennsylvania, Texas, Tennessee, and Wisconsin for individual insurance and offers small business HRA administration nationwide.