While the QSE-HRA has been wildly popular with those who know about it, many small employers miss out because they are unaware of this valuable resource for employee health benefits. Let’s look at what makes an employer eligible for a QSE-HRA.
The Qualified Small Employer Health Reimbursement Arrangement (QSE-HRA) was created by the 20th Century Cures Act of 2016 (Cures Act). Since the Cures Act dealt primarily with laws to “accelerate medical product development,” media reports gave little or no attention to the QSE-HRA. As a result, while the QSE-HRA has been wildly popular with those who know about it, many small employers miss out because they are unaware of this valuable resource for employee health benefits. Let’s look at what makes an employer eligible for a QSE-HRA in the first place.
For 2022, the maximum allowed QSEHRA annual benefit is $5,450 per employee electing individual coverage, and $11,050 per employee electing family coverage.
There are two rules that decide what makes an employer eligible for a QSE-HRA:
Section 9831(d)(3)(B)(ii) of the U. S. Code defines an “eligible employer” as one that does not offer a group health plan for employees (per Section 5000(b)(1)). This includes:
Employers that do not currently have a group health plan for employees may start a QSE-HRA at any time.
However, an employer with a group health plan in place may not change over to a QSE-HRA until the first day of the month following a month when the group plan was in place.
A QSE-HRA may not be established during any month when a group health plan was active for any day within that month. For example:
⇒ Retiree group health plan
Since a retiree is classified as a former employee, a company does not have to end a group health plan for retirees in order to become an employer eligible for a QSE-HRA.
An employer eligible for a QSE-HRA may not allow employees continued access to funds in a prior HRA or FSA.
The employer providing a QSE-HRA to employees may continue to make contributions to an employee’s Health Savings Account (HSA) and to allow the employee to continue making pre-tax contribution to his or her HSA through a Section 125 Cafeteria Plan.
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 QSEHRA annual benefit is $5,450 per employee electing individual coverage, and $11,050 per employee electing family coverage.
IRS guidance for the QSE-HRA says a qualified small employer has fewer than 50 full-time or full-time equivalent employees.
An employer with fewer than 50 employees is not an applicable large employer (ALE) subject to the Affordable Care Act’s (ACA) shared responsibility and reporting provisions.
This <50 employee rule refers to the total number of employees, includes full-time and part-time workers, and whether or not an employee is eligible to participate in the QSEHRA.
The formula for number of employees is an annual average of each month’s full-time and full-time equivalant (part-time) employees. Here is how to account for each group.
Full-time employees
According to the IRS, a full-time employee “has on average at least 30 hours of service per week during each calendar month in the previous 12 months, or at least 130 hours of service during the calendar month.”
Full-time equivalent (part-time) employees
IRS rules state, “A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”
Combined employee count
Add the final number from each employee classification (above).
Click here to see an example of these calculations with a spreadsheet you can download.
When an employer becomes an ALE while providing a QSE-HRA to employees, the employer is no longer an employer eligible for a QSE-HRA effective January 1 of the following year and must close the QSE-HRA by that date.
The table below shows pertinent dates for an employer showing 50 or more combined full-time and full-time equivalent employees for the year ending December 31, 2020.
|
Current QSE-HRA |
Current QSE-HRA |
Employer becomes |
Employer closes |
| 1/01/2020 | 12/31/2020 | 01/01/2021 | 12/31/2020 |
| 07/01/2020 | 06/30/2021 | 01/01/2021 | 12/31/2020 |
Run-out period for claims
When an employer providing a QSE-HRA is no longer an eligible employer, and the employer closes the QSE-HRA, the employer may allow a run-out period for claims incurred during the time the QSE-HRA was operational and the employee was eligible to receive reimbursements.
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