The Qualified Small Employer Health Reimbursement Arrangement or QSEHRA, is a new and increasingly popular health insurance option created back in December of 2016. In much the same way as HRA’s, the QSEHRA enables business with fewer than 50 employees to offer their workers a monthly allowance of tax-free money. The employees then opt and pay for health care – which can include personal insurance policies – and the employer reimburses them up to their allowance amount. In this way, businesses can better control their budget, while still giving their workers a meaningful benefit.
Let’s look in a little more detail at how QSEHRA’s work:
- The allowance amount is selected by the employer
The small business selects a monthly allowance of tax-free money for each employee; with no minimum contribution requirements, the business can offer employees different allowances depending upon their family status. Last year, QSEHRA contribution limits enabled small businesses to offer single employees up to $420.83 per month, and employees with a family, up to $854.16 per month.
- Workers can then make purchases
Depending upon their needs, such as personal health insurance premiums, co-pays, deductibles and prescription drugs, employees are free to make purchases that are eligible for reimbursement.
- Workers must submit proof of their expenses
Once an eligible expense has been incurred, the employee must submit proof of this to their employer by way of documents that must include a description of the product or service, its cost and the date that it was purchased.
- The employer reviews and reimburses the expenses
Once the worker has submitted the relevant documents related to their reimbursable expenses, the employer or third party will review them and reimburse them as appropriate from their monthly allowance.
All reimbursements made through this type of arrangement, are not subjected to payroll tax for the employer or the employee, and reimbursements can be free of income tax for employees if they are covered by a policy that gives them minimum essential coverage, or MEC.
The QSEHRA is a sensible and effective option for many small businesses, since it can be personalized, giving employees the ability to buy what best fits their needs, and employers the ability to set their own budget. For employees working in multiple states, those covered by a spouses group policy, or those without insurance, the QSEHRA can be especially valuable.
To discuss health insurance plans in greater detail, contact your local professional payroll providers, who will be able to discuss your options with you in further detail.