how a qualified small employer health reimbursement arrangement qsehra works
small businesses that don t provide group health insurance coverage to their workers can still help defray their employees health care costs up to a maximum amount each year by setting up a qsehra the qsehra must be funded entirely by the employer with no salary reduction contributions on the part of the employee the employer must offer the same terms to all of its full time employees employers cannot offer both a qsehra and a flexible spending account fsa to cover health costs eligible employees may enroll during open enrollment season or after experiencing a qualifying life event such as a marriage or divorce to qualify employees and any eligible household members must have minimum essential health insurance coverage such as through the health insurance marketplace created under the affordable care act employees can use their reimbursements to pay the premiums for their health insurance coverage as well as for qualified out of pocket expenses including copayments for doctor s office visits prescriptions and lab work employers may narrow the list of eligible expenses but not expand it and employees must provide proof of their actual medical costs to receive reimbursement qualified small employer health reimbursement arrangement qsehra contribution limitsthe maximum amount that employers may contribute to their qsehra accounts can change from year to year based on the cost of living the irs publishes the latest limits when they become available in 2024 the limit is 6 150 per individual employee or 12 450 for an employee and their eligible household members employees not covered by a qsehra for a full year such as mid year hires can receive a prorated amount of the full year maximum reimbursement history of the qualified small employer health reimbursement arrangement qsehra then president barack obama signed the qsehra into law on dec 13 2016 as part of the 21st century cures act and the plans became available to employees on march 13 2017 the act corrected a problem for small businesses offering health reimbursement arrangements hras between 2014 and 2016 during this period small businesses could be hit with penalties of 100 per employee per day for being out of compliance with the requirements of the affordable care act aca qualified small employer health reimbursement arrangement qsehra eligibilityas mentioned above to qualify to sponsor a qsehra a business must have fewer than 50 full time employees provide the qsehra on the same terms to all full time workers and not have a group health plan or a flexible spending arrangement fsa a qsehra is not a group health plan medium and large companies may offer their own hras only as an option alongside group health insurance coverage such as a preferred provider organization ppo or health maintenance organization hmo plan qualified small employer health reimbursement arrangement qsehra complianceto comply with the law all employees covered by a qsehra must benefit from it equally so if the employer offers a qsehra to any full time employees it must cover all of them however employers are not required to include new part time or seasonal workers in the benefits they provide because the aca governs these arrangements participating employees must provide proof that they carry the minimum essential health coverage required by the aca under irs rules employers must report the amount of reimbursement an employee was entitled to receive for the calendar year just ended in box 12 of the employee s annual form w 2 wage and tax statement using code ff as the irs notes that figure may be different from the amount of reimbursement the employee actually received for example if your qsehra provides a permitted benefit of 3 000 and your employee receives reimbursements of 2 000 on form w 2 you would report a permitted benefit of 3 000 in box 12 as mentioned however the employee is not taxed on either amount qsehra plans are also subject to oversight under the employee retirement income security act erisa erisa regulations require that employers give employees a summary plan description that details their plan benefits finally should an employer decide to make group health insurance available it is no longer permitted to offer a qsehra plan 