What Is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)?

What is a QSEHRA?

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a type of Health Reimbursement Arrangement (HRA) created by federal law to help small employers provide health benefits without sponsoring traditional group health insurance.

Instead of purchasing one health insurance plan for all employees, the employer sets a reimbursement allowance. Eligible employees can purchase their own qualifying health insurance and request reimbursement for eligible expenses.

If program requirements are met, reimbursements are generally excluded from federal income and payroll taxes.

How does a QSEHRA work?

The employer establishes the QSEHRA and determines an annual reimbursement amount, subject to federal limits.

Employees then:

1. Purchase qualifying individual health insurance or incur eligible medical expenses.
2. Submit documentation to the employer or plan administrator.
3. Receive reimbursement up to the amount available under the QSEHRA.

Unused reimbursement amounts generally remain with the employer unless the plan provides otherwise.

Who can offer a QSEHRA?

Only certain small employers qualify.

To offer a QSEHRA, an employer generally must:

• Have fewer than 50 full-time and full-time equivalent employees (meaning the employer is not an Applicable Large Employer under the Affordable Care Act).
• Not offer a group health plan to any employees.
• Offer the QSEHRA on substantially the same terms to all eligible employees, subject to rules established by federal law.

Employers that exceed the size threshold generally cannot offer a QSEHRA.

What expenses can a QSEHRA reimburse?

Depending on the employer's plan design and IRS rules, reimbursements may include:

• Individual health insurance premiums
• Medicare premiums
• Deductibles
• Copayments
• Coinsurance
• Prescription medications
• Other qualified medical expenses described in IRS Publication 502

Employers decide which eligible expenses their QSEHRA will reimburse, consistent with federal requirements.

QSEHRA vs. ICHRA

Although both programs reimburse employees for healthcare expenses, they serve different employers.

QSEHRA

• Available only to eligible small employers.
• Employer cannot offer a traditional group health plan.
• Annual reimbursement limits are established by federal law and adjusted periodically.

ICHRA

• Available to employers of any size.
• May be offered to specific employee classes instead of traditional group coverage.
• No federal maximum reimbursement limit.

Both programs allow employees to purchase individual health insurance rather than enrolling in a group health plan selected by the employer.

QSEHRA and Marketplace premium tax credits

A QSEHRA may affect an employee's eligibility for premium tax credits through the Health Insurance Marketplace®.

Depending on whether the QSEHRA is considered affordable under federal rules, employees may see their Marketplace premium tax credit reduced or may become ineligible for the credit.

Employees considering Marketplace coverage should review IRS and Marketplace guidance before making enrollment decisions.

Why this matters

Small businesses often want to help employees with healthcare costs but may not be able to afford a traditional group health plan. A QSEHRA gives eligible employers another option by allowing them to reimburse employees for qualified healthcare expenses while giving employees flexibility to choose their own health insurance.