QSEHRA: What Are They And Why You Should Know!
By Lars Schultz, Benefits Consultant
Thereís new way for small employers and non-profits to offer health insurance to their employees and many organizations arenít even aware it exists. Letís take a dive into QSEHRAs!
QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. It allows a small employer to set aside a fixed amount of money each month for an employee to purchase individual health insurance or use on medical expenses, tax free. In a nutshell, employees pay their own health expenses and medical bills to the insurance company or doctorís office directly, they then provide proof of their expenses to their employer and the employer reimburses the employee up to the set limits.
Now that you know the basics of a QSEHRA, Ietís dig deeper:
Where did QSEHRAs come from?
QSEHRAs were born in December 2016 from a provision in the 21st Century Cures Act. The provision was quietly snuck through and many people did not even know about it. If youíre wondering if this provision will stay in the law - it was one of the measures that had bi-partisan support, so odds are it will stick around.
What are some benefits of a QSEHRA?
- Tax Advantages: Employers can make reimbursements without having to pay payroll taxes and employees do not have to recognize income tax. Be sure to consult with your tax advisor on specific tax implications for your company!
- Flexibility: There are no requirements for minimum contributions or participation rates.
Is my business eligible?
- Cost Control: Employers can set how much they want to contribute each year (up to a maximum) and there are never any increases unless the employer chooses to increase the amount.
To be eligible to provide a QSEHRA, an employer must meet the following two requirements:
ALEs are employers that employ, on average, at least 50 full-time employees, including full-time equivalents, during the preceding calendar year.
- The employer is not an applicable large employer (ALE) that is subject to the ACAís employer shared responsibility rules.
- The employer does not maintain a group health plan for any of its employees.
What are the maximum reimbursement rates for 2020?
Like all HRAs, a QSEHRA must be funded solely by the employer. Employees cannot make their own contributions, either directly or indirectly through salary reduction contributions. QSEHRAs can be designed to permit carryovers of unused amounts. However, IRS Notice 2017-67 confirms that any carryovers of unused amounts from a prior plan year are taken into account when determining an employeeís maximum annual benefit.
How do I administer a QSEHRA?
There are a few things you will need to do to make sure that youíre administering the plan properly:
The administration rules can be difficult for a small employer. If rules arenít followed the IRS could deem your QSEHRA invalid and all of your reimbursements would become taxable income for both you and your employees. Having a third party administer the plan for you is highly recommended.
- Verify employees are covered by an insurance plan
- Employees can be covered by a spouseís plan, a parentís plan or their own individual plan
- Plans must provide Minimum Essential Coverage (MEC)
- MEC plans include major medical plans, Medicaid or Medicare
- Reimburse claims once they have been submitted by employees
- File form 720 and pay the Patient-Centered Outcomes Research Center Trust Fund (PCORTF) fee for each plan year (July 31 deadline).
- Provide a written notice to each eligible employee. This notice must be provided no later than 90 days before the beginning of the year.
- For employees who become eligible to participate in the QSEHRA during the year, the notice must be provided by the date on which the employee becomes eligible to participate.
- Keep accurate records.
Now that you know what a QSEHRA is, it may be a great option for you and your employees!