QSEHRAs

QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. It is a type of health reimbursement arrangement offered by small employers to reimburse employees for qualified medical expenses. Typically available to employers with fewer than 50 full-time equivalent employees that do not offer a traditional group health plan to the same class of employees. The arrangement provides a fixed dollar amount each year that employees can use to pay for eligible medical costs, including health insurance premiums in some cases. Reimbursements are tax-free to employees and deductible to the employer, subject to IRS limits.

Key features and requirements include a written plan document, annual notices to eligible employees, and meeting uniform terms for all eligible employees in the same class. The plan must comply with notice and documentation rules and be administered in a consistent manner. Employers set annual per-employee contribution limits, which are indexed for inflation and can change annually by the IRS. Because laws and limits change, employers and employees should review current IRS guidance each year.

Eligible expenses generally include medical care and services defined by IRS 213(d). This can cover many out-of-pocket costs and, in certain cases, premiums for individual health insurance coverage purchased in the individual market or marketplace plans, provided the employee has minimum essential coverage. Reimbursements for premiums can affect the employee’s eligibility for premium tax credits in the individual market. An HRA cannot generally be offered alongside a group health plan to the same class of employees.

QSEHRA provides a way for small employers to offer some health benefit value without maintaining a traditional group plan, while remaining compliant with applicable rules.