QSEHRA

DEFINITION of 'QSEHRA'

An Affordable Care Act-compliant health coverage plan for small businesses with fewer than 50 full-time employees or the equivalent. A QSEHRA allows companies to reimburse workers up to $4,950 per year for single coverage and up to $10,000 per year for family coverage. Reimbursements can be used to pay the premiums for health insurance purchased on the individual market and to pay for qualified medical expenses. Employees must provide employers with proof of their actual expenses in order to get reimbursed for them.

Employees who aren’t covered by a QSEHRA for the full year, such as mid-year hires, receive a prorated amount of the full-year maximum reimbursement amount. Depending on the reimbursement they receive, employees who participate in a QSEHRA may receive a lower subsidy or no subsidy for their health insurance premiums.

QSEHRA is an acronym for Qualified Small Employer Health Reimbursement Arrangements.

BREAKING DOWN 'QSEHRA'

Qualified small employer health reimbursement arrangements were signed into law by former president Barack Obama on December 13, 2016, as part of the 21st Century Cures Act. These plans become available to employees within 90 days of employer notification, meaning that March 13, 2017, is the first day they became an option for workers whose employers notified them about the plans immediately after the law was signed. The Act remedies a serious problem that small businesses offering Health Reimbursement Arrangements (HRAs) in 2014 through 2016 faced: penalties of $100 per employee per day, because small employer HRAs were then considered out of compliance with Affordable Care Act (ACA) requirements.

With the exception of small employers, employers cannot offer stand-alone HRAs under ACA rules. There is no equivalent of the QSEHRA for medium and large employers. They may only offer HRAs alongside group health insurance coverage such as a Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO) plan.

An HRA is an optional benefit that employers can use to reimburse employees for qualified medical expenses. The qualified medical expense must be on the IRS’s list; employers can define a narrower list but not a broader one. Examples of common qualified medical expenses include co-insurance for doctor’s office visits, prescriptions, and lab work. HRAs are entirely employer funded; employees do not contribute to them. The benefits they pay are tax-free to employees. HRAs are not available to self-employed individuals, but employees who have the option to participate can sign up during open enrollment or after experiencing a qualifying life event.

To comply with the law, all employees covered by a QSEHRA must benefit from it equally. This means that employers must generally contribute the same amount to each employee’s account. The exception to this rule is that if different employees pay different premiums based on their age or the number of family members covered, the employer may adjust those workers’ QSEHRA benefits accordingly. In addition, employers do not have to cover new, part-time or seasonal workers, but they otherwise must cover all employees if they offer a QSEHRA. If an employer offers another form of group health insurance, however, they cannot offer a QSEHRA. Because QSEHRAs are governed by the ACA, employees who participate in them must prove that they carry the minimum essential health coverage required by the ACA.

QSEHRAs are also governed by the Employee Retirement Income Security Act (ERISA), so employers must give employees a summary plan description describing their benefits under the plan.