Small businesses face unique challenges as they navigate the challenging landscape of providing affordable health care coverage. However, the rise of Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plans is transforming the way employers and employees approach health care benefits. Despite the benefits of QSEHRAs, many small businesses are unaware of this alternative solution. So, how do QSEHRA plans work? How do they help small businesses and their employees? Let’s take a closer look.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) are innovative arrangements that allow small businesses to make defined contributions on behalf of their employees for qualifying health care expenses. Unlike traditional group health insurance plans, QSEHRAs provide flexibility and give employees control over their health care choices.
To qualify for a QSEHRA plan, businesses must have fewer than 50 full-time W-2 employees and not offer group health insurance coverage. This makes QSEHRAs an ideal solution for many small businesses. For the year 2024, the contribution limit is set at $6,150 for individuals and $12,450 for households. These contributions are tax-free for both employees and employers, ensuring significant savings while covering qualified health care expenses.
Health care expenses include, first and foremost, the cost of an individual marketplace plan, doctor visits, copays, premiums, prescription glasses, and prescriptions. The coverage of these expenses offers small business owners an alternative to the potentially high costs of providing health insurance coverage and is an added employee benefit. For instance, a small business can contribute up to $6,150 annually toward their employees’ insurance premiums, significantly reducing the cost employee’s burden.
Many individuals that do not receive employer-sponsored health plans shop on their state exchange and may be eligible for premium-reducing tax credits. While the QSEHRA amount is tax-free, the amount is counted towards the employee’s income when it comes to Advanced Premium Tax Credits (APTC) eligibility. If the QSEHRA amount does not push the employee’s income over the qualifying threshold, they remain eligible for both the tax credit and the QSEHRA dollars. Lastly, if an employee is eligible for an APTC and has a QSEHRA, then the APTC is reduced by the amount of the QSEHRA contribution.
Unused QSEHRA dollars can also be rolled over from year to year if the employee remains with the company. This flexibility allows businesses to accumulate funds over time, creating a pool of resources that can be used to cover future health care expenses.
By understanding the eligibility requirements, contribution limits, and flexibility of QSEHRAs, small businesses can leverage the individual market and prioritize employee well-being. Implementing and managing a QSEHRA can be simple with the right approach, which includes selecting a QSEHRA administrator and creating a reimbursement process.
Small business owners can speak with a licensed tax professional, benefits specialist, or health insurance agent/broker to determine if a QSEHRA is a good option for them. QSEHRA plans offer a transformative solution, allowing businesses to provide customizable, cost-effective health care benefits while giving employees the power to choose how to best use the funds.
