The Qualified Small Employer Health Reimbursement Arrangement (QSE-HRA) is an employee benefit plan designed especially for companies with fewer than 50 full-time employees. The plan allows employers to provide funds employees can use to be reimbursed for health insurance premiums and qualified out-of-pocket medical expenses without requiring the employer to first provide a group health plan. The QSE-HRA no group health plan feature makes it an affordable way small employers can help employees offset personal health care expenses.
The QSE-HRA no group health plan feature is so central to its plan design that it is a fundamental eligibility requirement. If the employer offers any kind of group health plan at all for active employees, that employer may not also offer the QSE-HRA.
HRA News:
The new Individual Coverage HRA is available for employee groups of any size, reimburses employees for health insurance premiums, and has a grandfathering option for employees currently covered by a traditional employer-sponsored group health plan. Learn more.
For 2022, the maximum allowed QSE-HRA annual benefit is $5,450 per employee electing individual coverage, and $11,050 per employee electing family coverage.
Employers choose how much to fund the QSE-HRA (it is entirely employer funded). This can be any amount up to the annual limits set by the IRS each year. For 2022, the maximum allowed annual benefit is $5,450 per employee electing individual coverage, and $11,050 per employee electing family coverage.
Employees participating in the plan must provide proof of Minimal Essential Coverage (MEC) for the employee and any covered dependents before the QSE-HRA reimburses them for any eligible medical expense. Employees purchasing coverage on their own will submit proof of MEC when seeking reimbursement for their health insurance premium; otherwise, proof of MEC will come from the spouse or parent group health plan covering the employee as a dependent.
It is important to understand clearly that while the employer may not provide any kind of group health insurance for employees — none at all — the employee is required by law to have his or her own coverage (and coverage for any eligible dependent covered under the QSE-HRA) before receiving any reimbursement at all.
For example, an employee cannot go without buying their own MEC and then ask for QSE-HRA reimbursement of non-premium out-of-pocket medical expenses.
Funds reimbursed through a QSE-HRA are tax-deductible for both the employer and employee. W-2 reporting is required but will not affect the employee’s taxes unless the employee (1) failed to report the amount of the QSE-HRA on the ACA Health Insurance Marketplace and received a premium tax credit to buy insurance or (2) received reimbursement during a period of time when their MEC had lapsed.
Does the QSE-HRA no group health plan rule make it a perfect fit for thousands of small employers? Yes, because it makes health care benefits for employees within the grasp of even the smallest company with only one or a handful of employees.
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More on the QSE-HRA:
When is an employer eligible for a QSE-HRA?
Reporting QSE-HRA employee benefits on Form W-2
QSE-HRA reimbursement to employees without health insurance
What is proof of MEC for QSE-HRA eligibility?
Q&A from QSE-HRA guidance (Notice 2017-67) is covered in these blog posts:
QSE-HRA Guidance: Eligibility, Terms, Limits and Notice Requirement (Part 1 of 3)
QSE-HRA Guidance: Coverage, Reimbursement, Reporting, and Marketplace Coordination (Part 2 of 3)
QSE-HRA Guidance: Failure to Satisfy, HSA Interaction, and Effective Date (Part 3 of 3)
Read the full text of IRS Notices on QSE-HRA plans and Presidential EO 13813:
Qualified Small Employer Health Reimbursement Arrangements (Notice 2017-67)
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