How Does a QSEHRA Work?
We’d like to introduce you to a health insurance option with a funny name, known as a QSEHRA. A QSEHRA (typically pronounced “Q-Sarah”) is a Qualified Small Employer Health Reimbursement Arrangement.
With a QSEHRA, employees may use their allowance for reimbursement toward qualified expenses related to a health insurance policy, including premiums. Vision and dental care are also eligible.
As the name implies, only employers with fewer than 50 full-time workers (or full-time equivalents) may provide a QSEHRA. All full-time employees must be provided coverage, but employers may exclude part-time and seasonal employees, as well as workers younger than age 26, who are allowed to be on their parents’ health insurance plan. However, employer contributions to each employee’s QESHRA must be equal.
If offering a QSEHRA, group health insurance must be discontinued. According to the IRS, a QSEHRA cannot be combined with any other group health plan, so it cannot be used with an FSA.
The IRS sets contribution limits for a QSEHRA. For 2022, the cap is $5,450 for single employees and $11,050 for employees with families. There are no minimum contribution requirements. Employers keep unused funds at the end of the year.
How a QESHRA works
- Employer chooses a monthly, per-employee allowance of tax-free money. Only employers may contribute, and contributions are tax-deductible.
- Employees make purchases based on their unique situations.
- Employees submit proof of expenses.
- Submitted expenses are reviewed and reimbursed.
Things that are eligible for reimbursement include:
- Medical insurance premiums
- Dental and vision insurance premiums
- Long-term care insurance premiums
- Prescription drugs
- Hospital services
- Nursing services
- Chiropractor services
- Therapy received as medical treatment
Certain items are not eligible for reimbursement, including:
- Babysitting and childcare
- Cosmetic surgery
- Controlled substances
- Funeral expenses
- Expenses that are reimbursed by a flexible spending arrangement
- Future medical care
When offering a new QSEHRA, employers must notify employees at least 90 days before the start of the year or when a new employee becomes eligible. Employers must also tell each employee the amount of the annual benefit.
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