Certain small employers—generally those with less than 50 employees that don’t offer a group health plan—can contribute to their employees’ health care costs through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
A QSEHRA allows small employers to provide non-taxed reimbursement of certain health care expenses, like health insurance premiums and coinsurance, to employees who maintain minimum essential coverage, including an individual Marketplace plan. In many states, QSEHRAs allow small employers to provide their employees additional plan choices without managing group health plan coverage.
Is your small business eligible to offer a QSEHRA?
To qualify for a QSEHRA, a small employer generally must:
Note: A QSEHRA isn’t a traditional group health plan. For small businesses interested in offering traditional group coverage, find out if SHOP is available in your state. Enrolling in SHOP is generally the only way to qualify for the Small Business Health Care Tax Credit, which can save eligible employers up to 50% of their employer contribution for 2 consecutive years.
With a QSEHRA, small employers can decide what they'll contribute to their employees’ health care costs, up to an annual maximum that is set by the IRS. Employees pay their provider or insurance company for their health care costs, then submit proof of payment to be reimbursed by the QSEHRA. Reimbursement is tax-free. If an employee doesn’t submit a claim, the employer keeps the money, though they may choose to roll it over from year to year while the employee is still employed by the business. Typically, QSEHRA amounts claimed by employees are paid monthly by their employer.
|Year||Maximum employee only contribution||Maximum for employees & households|
$5,150 ($429 monthly)
$10,450 ($870 monthly)
$5,250 ($437.50 monthly)
$10,600 ($883.33 monthly)
$5,300 ($441.67 monthly)
$10,700 ($891.67 monthly)
$5,450 ($454.17 monthly)
$11,050 ($920.83 monthly)
Generally, the QSEHRA amount you provide to your employees will affect the amount of premium tax credit your employees are eligible for with their Marketplace coverage. If you provide the QSEHRA to employees’ dependents, then it will affect the dependent’s premium tax credit eligibility, as well. They may be eligible for some or no tax credit depending on the QSEHRA amount you provide. Visit the IRS website to find out more about QSEHRA rules.
Small employers can set up a QSEHRA at any time. To provide a QSEHRA you’ll need to give written notice to your new employees as soon as they’re eligible to participate and 90 days before the beginning of each plan year for current employees. This notice is required to include certain information–to learn more about what this notice must include, review IRS Notice 2017-67 (PDF, 211 KB). Note: Employees must have qualifying health coverage to use their QSEHRA amount.
You may want to consider how your employees can get qualifying health coverage when picking a start date. For example, providing a QSEHRA starting on January 1 allows employees to choose coverage during the individual market’s annual Open Enrollment Period, and in most cases, plan deductibles reset on January 1 each year. If you’re newly providing a QSEHRA, your employees may qualify for a Special Enrollment Period. Newly hired employees who gain access to the QSEHRA may also qualify for a Special Enrollment Period to enroll in or change individual health insurance coverage outside of Open Enrollment. To enroll in coverage through this Special Enrollment Period, employees can submit an application on HealthCare.gov and include information about when their HRA can start.
Get help: Talk to a licensed tax professional, benefits specialist, or health insurance agent/broker to find out if group coverage or QSEHRAs are right for your small business.
Compare QSEHRAs to other products and services that may be available to help you cover your employees.
If you’re an employee who has been provided a QSEHRA by your employer, learn more about QSEHRAs and the Marketplace.