A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a valuable tool for small businesses that don’t offer traditional group health insurance to their employees.
This arrangement allows employers to reimburse employees for a portion, or even the entire cost, of their individual health insurance premiums, purchased privately or through the Health Insurance Marketplace.
Additionally, QSEHRAs can be used to reimburse employees for out-of-pocket medical expenses, providing a significant benefit for companies that don’t offer full health coverage.
Key Advantages of QSEHRA and Who Qualifies
The key advantage of a QSEHRA is that these reimbursements are tax-free for both the employer and the employee, making them a cost-effective way to provide health benefits.
However, there are limitations. The IRS sets annual reimbursement limits, which vary based on the employee’s coverage (single or family). For 2025, the maximum annual reimbursement is $6,350 for single coverage and $12,800 for family coverage.
To be eligible for a QSEHRA, an employer must meet specific criteria. Primarily, they must be considered a “small employer,” meaning they have fewer than 50 full-time equivalent employees. Additionally, the employer cannot offer any form of group health insurance to any of their employees.
Other Considerations
One important consideration is the interaction between QSEHRAs and the premium tax credit when purchasing health insurance through the Health Insurance Marketplace.
Employees can receive both a QSEHRA benefit and a premium tax credit. However, the premium tax credit will be reduced by the amount of the QSEHRA reimbursement so that the total benefit received by the employee does not exceed what they would have received with only the premium tax credit.
For employers considering different approaches to employee health coverage, it’s important to understand the distinction between QSEHRAs and Individual Coverage Health Reimbursement Arrangements (ICHRAs).
While QSEHRAs are designed for employers who do not offer any group health plans, ICHRAs provide more flexibility, allowing employers to offer both group and individual health insurance options to different classes of employees.
QSEHRAs offer a valuable alternative to traditional group health insurance for small businesses. By providing tax-free reimbursements for individual health insurance premiums and medical expenses, QSEHRAs can help employees afford quality healthcare while providing valuable employee benefits for the employer.
GTM Insurance Agency can help design an employee benefits plan that is right for your company. Call us at 518-373-4111 or request a free quote.
