Certain small employers—generally those with under 50 employees that do not offer a group health plan—can contribute to their employees’ health care costs through a professional Small Employer Health Reimbursement Arrangement (QSEHRA).
A QSEHRA allows small employers to offer non-taxed reimbursement of certain health care expenses, like insurance premiums and coinsurance, to employees who maintain minimum essential coverage, including an individual Marketplace plan. In most states, QSEHRAs allow small employers to offer their employees additional plan choices without managing group health plan coverage.
To qualify for a QSEHRA, an employer generally must:
• Have fewer than 50 full-time employees
• Provide the arrangement on an equivalent terms to all or any full-time employees
(reimbursement amounts may vary based on age and the number of people covered)
• Not offer a group health plan, like SHOP coverage or a versatile spending account (FSA)
With a QSEHRA, small employers can decide what they will contribute to their employees’ health care costs, up to the annual maximum. Employees pay their provider or insurance firm for his or her health care costs, then submit proof of payment to be reimbursed by the QSEHRA. Reimbursement is tax-free. If an employee does not submit a claim, the employer keeps the money, though they will prefer to roll it over from year to year while the worker remains employed by the business. Typically, QSEHRA amounts claimed by employees are paid monthly by their employer.
Year Maximum employee only contribution Maximum for workers & households
2018 $5,050 ($420 monthly) $10,250 ($854 monthly)
2019 $5,150 ($429 monthly) $10,450 ($870 monthly)
2020 $5,250 ($437.50 monthly) $10,600 ($883.33 monthly)
2021 $5,300 ($441.67 monthly) $10,700 ($891.67 monthly)
Generally, the QSEHRA amount you provide to your employees will affect the amount of premium tax credit your employees are eligible for with their Individual Marketplace coverage. They will be eligible some or no credit based on the QSEHRA amount you provide. Visit the IRS website to learn more about QSEHRA rules.
How to start a QSEHRA
Small employers can establish a QSEHRA at any time. To supply a QSEHRA you will need to provide written notice to your employees as soon as they are eligible to participate and 90 days before the start of every plan year. This notice is required to incorporate certain information.
You may want to consider how your employees can get qualifying health coverage when picking a start date. For instance, providing a QSEHRA starting on January 1 allows employees to settle on coverage during the individual market’s annual Open Enrollment Period, and in most cases, plan deductibles reset on January 1 annually. If you are ending group health plan coverage to supply a QSEHRA, your employees may qualify for a Special Enrollment Period. Newly hired employees who gain access to the QSEHRA can also qualify for a Special Enrollment Period to enroll in or change individual insurance coverage outside of Open Enrollment. To enroll in coverage through this Special Enrollment Period, employees can apply on HealthCare.gov and include information about when their HRA can start.