In 2013, IRS Notice 2013-54 issued guidance on the Affordable Care Act that seriously limited businesses’ ability to use health reimbursement arrangements (HRAs) However, Small Group Healthcare Reform was passed and the QSEHRA provisions went into effect January 1, 2017. The QSEHRA is a company-funded, tax-free health benefit used to reimburse employees for personal health care expenses and / or insurance.
With a QSEHRA, businesses offer employees a monthly allowance. Employees then choose and pay for health care expenses, and/or insurance policies, and the business reimburses them up to their allowance amount.
With the QSEHRA, all reimbursements are free of payroll tax for the business and its employees. Reimbursements can be free of income tax for employees, too, if the employee is covered by a policy providing minimum essential coverage – This enables tax savings for the Employer and Employee/
How it Works:
- Set A Defined Contribution amount – Monthly tax free with no minimum contribution
- Employees purchase product(s) – Employees select from a consortium of products – individual to their specific wants and needs.
- Employees submit Proof – Employees submit invoice or receipts of those purchased service / product(s) to receive the benefit from employer
- Employer – reimburses employees for those expenses. Contributions and deductions can be tax deferred saving both the Employee and Employer money.
The QSEHRA vs. group health insurance
One of the primary reasons small businesses choose to offer a QSEHRA is cost. They’re often unable to afford traditional group health insurance, so they look for an option that helps them keep control over their budget.
Kaiser Family Foundation data shows that small businesses that offered a group health insurance policy spent an average $455 per employee per month in 2017 for single coverage and $900 per employee per month for family coverage.
Small businesses that offered a QSEHRA, though, committed to an average $297 per month per self-only employee and $445 per month per employee with a family and the QSEHRA provides value outside of insurance with reimbursement features from defined medical expenses.
Employees covered under a QSEHRA also chose their own insurance coverage—something not possible under a group health benefit. Coverage specific to their wants and needs.
While administering the program may seem burdensome, QSEHRA platforms are available to administer the program and reduce the administrative burden of the plans offered increase the value and saving over traditional employer sponsored programs. Programs can include ancillary coverage, such as Dental, Vision, and some supplemental plans.