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What is QSEHRA?
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How Does QSEHRA Work?
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Who Qualifies for QSEHRA?
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How Much Are Employers Allowed to Contribute to a QSEHRA?
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What Medical Expenses Can QSEHRAs Cover?
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Benefits of Offering a QSEHRA
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QSEHRA vs. Traditional Group Health Insurance
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How to Setup a QSEHRA for Your Small Business
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FAQs
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Get Started with Your QSEHRA Today
What is QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a health benefit alternative to traditional health care, tailored to businesses with less than 50 full-time equivalent (FTE) employees. Rather than providing a standard group health insurance plan, companies offering QSEHRA can reimburse employees tax-free for their individual health insurance premiums and other qualified medical expenses.
QSEHRAs stands as a flexible, economical alternative to group health plans, allowing small businesses to offer employees important medical benefits without the complexity of traditional coverage.
How Does QSEHRA Work?
- Employers Establish a Monthly Allowance: Small business owners get to decide up to how much money they pay back to their staff each month for premiums and medical expenses. The IRS establishes annual limits each year that the employer reimbursement amount must stay within (for 2025, the IRS annual limit is $6,350 for individuals and $12,800 for families).
- Employers Buy Their Own Health Insurance Plans: Whether it’s through a private insurer, the Marketplace or other sources, employees purchase their own health plans based on individual and/or family preferences.
- Employees Submit Health Expense Claims to Their Employer: Next, employees submit expense claims to their employer for reimbursement. Expenses include their insurance premiums and other qualified medical costs.
- Employers Reimburse Their Employees Tax-Free: Employers reimburse their workforce up to the predetermined monthly amount, after reviewing the submitted expenses. Employees receive their reimbursements tax-free and they are tax-deductible for the employer. Employers generally have a 90 day period to reimburse employees for qualified expenses.
EXAMPLE: An employer sets a monthly QSHERA allowance of $350. If an employee purchases a health plan that costs $250 per month, they would get reimbursed for the entire $250 each month, tax-free. The remaining amount (in this case $100, could be used for other qualified medical expenses).
Who Qualifies for a QSEHRA?
Employer Eligibility
- Have less than 50 full-time equivalent employees.
- Does not offer a traditional group health insurance plan such as SHOP plans or flexible spending accounts (FSA).
- Offers QSEHRAs to all eligible employees on the same terms (the reimbursement limits must be the same for everyone, though they can vary based on individual versus family coverage).
Employee Eligibility
- Employees need to have minimum essential coverage (MEC) in order to qualify for tax-free reimbursements. Minimum essential coverage simply means their health insurance benefits must meet the Affordable Care Act’s (ACA) mandate standards.
- Part-time and seasonal workers can be excluded if the employer chooses to do so.
- Employees need to work for the business for at least 90 days before becoming eligible.
- Spouse and dependent expenses are eligible for reimbursement, as long as they’re included on the employee’s health plan.
How Much Are Employers Allowed to Contribute to a QSEHRA?
The IRS sets yearly limits on the amount that employers can reimburse employees for premiums and medical expenses through a QSEHRA.
For 2025 the maximum annual reimbursement amount is $6,350 for individuals (roughly $529.16 per month), and $12,800 for families (about $1,066.66 per month).
It’s important to note that the figures above are simply maximum annual reimbursement amounts. Employers are allowed to set their annual amounts lower, but the structure must remain the same for all employees.
What Medical Expenses Can QSEHRAs Cover?
A QSEHRA can reimburse employees for the following expenses:
- Health insurance premiums (health, dental and vision premiums)
- Prescription and over-the-counter medications
- Doctors visits
- Hospital bills
- Preventive care
- Dental and vision expenses
- Medical equipment or supplies
- Mental health services
- Chiropractic services
- Copays and Deductibles
- Alternative/holistic treatments
To qualify for reimbursements, employees must provide proof of the expenses to their employer or plan administrator.
A QSEHRA generally won’t reimburse employees for the following expenses:
- Premiums for a group health insurance plan that’s provided by a spouse’s employer.
- Premiums associated with a parent’s health insurance policy.
- Any expenses that aren’t recognized as qualified medical expenses by the IRS.
Benefits of Offering a QSEHRA
- Tax Benefits: Employees receive reimbursements tax-free, while employers can deduct them from their taxes.
- Cost Control: By establishing their own reimbursement limits, employers avoid unexpected spikes in premiums costs.
- Employee Flexibility: Rather than being limited to a group health insurance plan that’s selected by their employer, employees can choose the health policy that best suits their needs.
- Simple Administrative Process: Since employees select their own plans, there is no group renewal process, group administration, or the need to negotiate with carriers or brokers.
- Helps Recruitment and Retention Efforts: Reimbursing employees for the majority or all of their healthcare needs is a great way to attract new talent, and keep current employees satisfied.
QSEHRA vs. Traditional Group Health Insurance
| Feature | QSEHRA | Traditional Group Health Insurance |
| Employee Size Requirement | Less than 50 employees | More than 1 employee |
| Employer Contribution | Employee sets monthly reimbursement limits | Employer pays a portion of premium costs (usually a fixed percentage) |
| Predictability of Cost | Employer only reimburses the qualified submitted expenses | Premium costs are fixed, but may increase each year |
| Employee Plan Choice | Employees choose their own plan | Employees enroll in a pre-selected employer-provided plan. |
| Compliance Requirements | Employees must have minimal essential coverage to qualify for reimbursements. | Must comply with the ACA, COBRA, ERISA, etc. |
How to Setup a QSEHRA for Your Small Business
- Establish a Monthly Budget: Set a monthly reimbursement cap with the IRS required limit.
- Create a Plan Document: Outline details such as eligibility, coverage and reimbursement details. An EZ insurance professional can help you do this!
- Inform Employees: Provide workers with a written notice regarding the QSEHRA, that includes the information you documented in step 2.
- Administer and Manage the Plan: Use a specialized software or third-party administrator to ensure compliance, and manage reimbursements.
- Monitor and Modify Annually: Evaluate the plan, and employee satisfaction on yearly basis to remain competitive.
FAQs
Are employees required to enroll in an ACA marketplace plan to use a QSEHRA?
No, employees that are enrolled in a health insurance plan that meets minimum essential coverage can use a QSEHRA. This includes ACA marketplace plans, or plans purchased directly through an insurer.
Can employees opt out of a QSEHRA?
Yes, employees are never required to participate in QSEHRA, but if opted-out, they won’t receive any medical expense reimbursements.
What happens if an employee’s monthly insurance premiums cost more than their QSEHRA allowance?
In this case, the employee would have to pay the remaining portion out of pocket.
Can employers offer both a QSEHRA and a group health plan?
No, if a business already offers group health insurance plans, they can’t offer a QSEHRA.
What’s the difference between a QSEHRA and an ICHRA?
While only businesses with less than 50 employees qualify to use a QSEHRA, ICHRAs allow businesses of any size to reimburse employees for insurance premiums and qualified medical expenses. Additionally, ICHRAs do not have set contribution limits, while QSEHRAs have limits set each year by the IRS.
What’s the difference between offering a QSEHRA and offering a health stipend?
A QSEHRA provides employees with tax-free reimbursements for health expenses and reimbursements are tax-deductible for employers. On the other hand, a health stipend is simply extra money employees receive each month to use for health-related purposes. Health stipends are considered taxable income for employees and offer no tax advantages for business owners. Additionally, QSEHRAs must follow IRS regulations, and employees must submit proof of expenses.
Get Started with a QSEHRA Today!
A QSEHRA is a fantastic option for small businesses looking to provide their employees with comprehensive health benefits, without the high cost and hassle of a traditional group health plan. Employers and employees tend to love the flexibility they each have with QSEHRAs, since they’re affordable for almost any business budget, and employees are empowered with choice of coverage.
Interested in setting up a QSEHRA for your small business? EZ.Insure makes the process quick and simple, offering you professional guidance so your plan’s ready in just a few minutes! Enter your ZIP code below to learn more or call us directly at (844)-770-0064.