The landscape of the health insurance market has gone through dramatic changes over the years. With the introduction of the Affordable Care Act (ACA) and the ongoing reform to each city’s own healthcare ordinances, staying in compliance and maintaining that competitive edge as an employer can be tough.
If you own a small business, there is a health care option that can be affordable to you as an employer and a great way to reimburse your employees for the cost of individual insurance and/or qualified medical expenses, on a pretax basis.
These plan options are called: Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) or Small Business HRAs.
It is an ACA-compliant health coverage plan for businesses with fewer than 50 full-time equivalent (FTE) employees.
What employers are eligible to offer a QSEHRA?
Employers must not be considered an Applicable Large Employer (ALE) to offer this plan. They must employ less than 50 FTE employees, and they must not offer group health insurance to any of their employees.
Note: Not all employees need to be offered the QSEHRA. Employers have the option to exclude certain types of employees such as part-time and seasonal, those who have only been working for the company for less than 90 days, and those under the age of 25.
What can the QSEHRA do for employees?
This plan can reimburse employees for medical care that incurs under the QSEHRA period of coverage including, premiums paid for health insurance bought in the individual market, out-of-pocket medical costs, prescription drugs, and more. A QSEHRA can even reimburse premium payments for coverage of a spouse or other eligible dependent, including expenses paid through another employer’s plan.
Employees must be enrolled into minimum essential coverage (MEC) in order to receive reimbursements.
How it Works
- Employers must notify their employees at least 90 days in advance of the start of the year or start of the new employee’s eligibility. This notice must include:
- Amount of the employee’s annual benefit
- A statement advising employees to report their QSEHRA benefit to where they apply for premium tax credits
- A statement informing the employee that they will have to pay taxes on the benefit for any month that they do not maintain health coveragEmployers set an amount for employee reimbursement that falls within the legal limits
- Employees receive a monthly amount eligible for reimbursement
- Employees submit an invoice each month and collect reimbursement
- With the QSEHRA, reimbursements are free of payroll tax for the business and its employees.
Advantages for the Employer
- As an employer-funded health plan, you have the freedom to set the amount which you want to contribute as well as any end of year rules (money to rollover or provide a run-out period)
- It’s great for your employees as out-of-pocket costs are reduced and it allows them to choose the health plan that is the best fit for them
- Offering a QSEHRA can help attract and retain employees
Every year, there is a contribution limit that may or may not change. To access updated contribution limits, click here.
If you are interested in learning more about other pre-tax health plans you can provide your workforce, contact us by filling out the form below.