Since at least the 1940s, employers have been supporting employee needs for healthcare. Smaller employers, though, often found group coverage options to be cost-prohibitive. Over the years, new plan types have been created in response to market needs and challenges. For smaller employers, a Qualified Small Employer Health Reimbursement Account, or QSEHRA, may be an attractive option.
Despite being available since 2017, a lot of small employers don’t know much about QSEHRAs. Let’s take a brief look at the history of Health Reimbursement Arrangements (HRAs) and then address some frequently asked questions specifically about QSEHRAs.
A Brief History of HRAs
Healthcare plan costs have risen steadily. This has prompted plan sponsors to incorporate cost-sharing measures like deductibles and coinsurance. Beginning in the 1970s, employers often turned to Medical Expense Reimbursement Plans (MERPs) to alleviate some cost-share responsibilities. In 2002, the IRS published Notice 2002-41 that essentially created today’s HRAs. These accounts are owned and funded by employers. They help employees pay for eligible out-of-pocket costs like copays, deductibles and prescriptions that are not covered by the group health insurance plan.
For larger employers, this was a great way to continue supporting employee insurance needs while having more coverage options. But for smaller employers with problems affording a group plan, it was of little to no help at all. That meant their employees continued to either struggle with healthcare costs or skip needed care altogether. In response to this shortfall and others, the Affordable Care Act (ACA) was enacted in 2010. This legislation made it more affordable for many Americans to obtain at least a minimum level of health insurance coverage.
QSEHRA Frequently Asked Questions
What is a QSEHRA?
A QSEHRA allows small employers to provide non-taxed reimbursement of certain health care expenses, like premiums and coinsurance, to employees who maintain minimum essential coverage. In many states, QSEHRAs allow small employers to provide their employees additional plan choices without managing group health plan coverage.
How did they start?
The ACA was seen as a great start but not a complete answer. So, in late 2016, Congress passed the 21st Century Cures Act. This legislation enabled certain employers to offer QSEHRAs. This was a welcome addition to the healthcare arena. In fact, a PeopleKeep study reported by the Society for Human Resource Management (SHRM) found that the majority of small employers starting a QSEHRA had not provided any benefits (71%) or had only offered a taxable stipend (20%) prior to having this option.
What do employers need to know?
According to Employer Benefits News (EBN), there are a number of perks for employers who offer QSEHRAs. They are in control of the plan by setting defined contribution limits. They reimburse employees for their premiums and medical expenses with funds that are not taxable to the employee. And they don’t have to spend time or money finding an attractive group plan they can afford to offer.
To sponsor a QSEHRA, the employer must meet the following requirements:
- The company must have no more than 50 full-time (or equivalent) employees (FTEs)
- The QSEHRA must apply to all FTEs on the same terms
- There can be no other group health coverage option available at the same time, including SHOP plans or FSAs (Flexible Spending Accounts)
There are some important participation restrictions to note:
- The employer decides how much they will contribute, up to the IRS annual maximum
- Employees must pay costs out-of-pocket and then get reimbursed by the plan
- The employer chooses whether leftover funds at the end of the plan year are rolled over or not
- The employer can set up a QSEHRA at any time, not just during open enrollment periods
What do employees need to know?
First, your employer will need to confirm that you (and your dependents, if applicable) are enrolled in a health plan with current Minimum Essential Coverage (MEC). Then you will receive a notice of your option to enroll in the QSEHRA that includes the value of the plan. Your employer completely funds the QSEHRA.
Once your plan takes effect, you can submit eligible expenses for reimbursement. These may include insurance premiums, prescriptions and out-of-pocket healthcare costs such as copays or deductibles.
Employees enrolled in a Marketplace plan should ask their employer about how the QSEHRA will affect their existing tax credit. This is important to know because in some cases, the employee could become responsible for taxes on reimbursements.
For small business owners seeking an affordable healthcare plan for employees, the QSEHRA can be a welcome option. While it does remove a lot of the guesswork and decision-making out of the process, there is still a lot to consider. A benefits broker and third-party administrator (TPA) can be an employer’s best ally. They can help the employer offer this option to help the employees who keep the business going and successful.
*This blog is not intended to act as legal advice. Please contact your TPA or qualified benefits counsel for more information.
DataPath, Inc. is a leading provider of technology solutions for cloud-based benefits administration, including QSEHRAs.