QSEHRA

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), also known as Small Business HRA, is an Affordable Care Act-compliant health coverage plan for businesses with fewer than 50 full-time-equivalent (FTE) employees. A QSEHRA allows companies to reimburse workers up to $4,950 per year for single coverage and up to $10,000 per year for family coverage, adjusted for inflation. Reimbursements may pay the premiums for health insurance purchased on the individual market and pay for qualified medical expenses. Employees must provide proof of their actual medical costs to receive reimbursement.

Employees not covered by a QSEHRA for a full year (e.g., mid-year hires) receive a prorated amount of the full-year maximum reimbursement amount. Depending on the reimbursement received, employees participating in a QSEHRA may receive a lower subsidy or no subsidy for their health insurance premiums.

Former President Barack Obama signed the Qualified Small Employer Health Reimbursement Arrangement into law on December 13, 2016, as part of the 21st Century Cures Act. These plans became available to employees March 13, 2017. The Act remedies a problem for small businesses offering Health Reimbursement Arrangements (HRAs) between 2014 to 2016. During this period, small businesses met penalties of $100 per employee, per day for being out of compliance with the Affordable Care Act (ACA) requirements.

Under ACA regulation, employers cannot offer standalone HRAs. An exception exists for small employers. Medium and large companies may only offer HRAs alongside group health insurance coverage such as a Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO) plan.  Sole proprietors, partners in partnerships, and self-employed employers are not eligible for HMO and PPO plans.

An HRA is an optional benefit that employers use to reimburse employees for qualified medical costs, as detailed by the IRS.  Employers may narrow the list of eligible expenses, but cannot expand it. Examples of typical qualified medical expenses include co-insurance for doctor’s office visits, prescriptions, and lab work. Employers fund HRAs solely, and the benefits are tax-free to the employees.  Eligible employees may enroll during open enrollment season or after experiencing a qualifying life event, such as a marriage or divorce.

To comply with the law, all employees covered by a QSEHRA must benefit from it equally. Plan premiums will vary and are dependent on the employee's age and the number of family members included in the coverage. Employer contributions to each employee's account must be equal. So, in the case of employees with higher premiums for age or family size, QSEHRA benefits must also adjust. 

Employers are not required to include new, part-time, or seasonal workers in their provided plans. However, if offering a QSEHRA, they must cover all employees. If an employer makes another form of group health insurance available, they cannot offer a QSEHRA plan. Because the ACA governs these arrangements, participating employees must provide proof they carry the minimum essential health coverage as required by the ACA.

QSEHRA plans receive oversight from the Employee Retirement Income Security Act (ERISA). Following ERISA regulation, employers must give employees a summary plan description that describes their plan benefits.