Qualified Small Employer Health Reimbursement Arrangement (“QSEHRA”) – an alternative to the group health insurance plan

Health insurance is an important benefit for many in the workforce. However, some small employers are not able to or choose not to maintain a group health insurance plan. Several employers are recognizing their corporate social responsibility and are trying to find the most effective way to provide these benefits to their employees.

One potential option is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which is a reimbursement plan whereby an employer reimburses employees for coverage maintained by the individual. The reimbursement is not included in the employees’ gross income, but is deductible by the employer.

Eligible Employers:

  • The employer must be a small employer (not an applicable large employer – or “ALE”)
  • The employer must not provide a group health plan to its employees (including a dental or vision plan)

Eligible Employees (arrangement must be provided to all eligible employees):

  • All employees are eligible, but the terms of a QSEHRA may exempt the following:
    • Employees who have less than 90 days of service
    • Employees who have not attained age 25
    • Part time or seasonable employees
    • Union employees
  • The employee must provide proof that they have minimum essential coverage (“MEC”) under the ACA

QSEHRA facts:

  • Reimbursements are funded solely by the employer (no salary reduction contributions)
  • The amount of reimbursements cannot exceed $5,150 (single) and $10,450 (family) for 2019
  • QSEHRA cannot be provided to retirees or former employees or non-employee owners
  • The employer must furnish initial written notice to its eligible employees 90 days before the first day of the plan year. The statement must include the amount of the permitted benefit
  • Beware – if a QSEHRA fails to satisfy all the requirements for treatment as a QSEHRA, it will be a regular HRA, which will be subject to the $100/day/employee excise tax mandated under the ACA

Administrative requirements:

  • Legal documents must be created for the plan
  • Payments under QSEHRA go on the employee’s W-2,Box 12 with Code FF
  • The employer is not required to do any 1095 reporting

A QSEHRA could be a good option for small businesses because it reduces taxable income and provides value to employees without the administrative burden of maintaining a group health plan.  For more information about this, please contact your tax professional at Isdaner & Company at 610.668.4200.