by J. Lea Weaver
January 2021
When Health Insurance Isn’t Affordable
Most employers want to offer the richest benefit packages available to both attract and retain top talent, but sometimes, major medical insurance is just out of reach. Small companies just starting out may find most carriers contribution strategies and participation requirements too stringent. Other small employer groups may either have risk issues within their groups that have inflated premium costs to unmanageable levels, or they may have hourly wage-earners who typically do not participate in the offered plans even considering the allotted employer subsidy. All of these groups have one thing in common. They want to offer benefits to their employees but cannot afford to do so in a traditional sense.
Additionally, according to a 2015 Glassdoor Employment Confidence Survey, over 80% of polled employees ages 18 – 44 preferred perks over pay raises. Number one on the perks list? Health Insurance.
Insert the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
How a QSEHRA Can Solve the Affordability Issue
When an employer finds that the cost of health insurance and other benefits fall drastically outside of their budget, the QSEHRA solves that problem by allowing the employer to set a tax-free, affordable, per-employee monthly allowance. This solves another problem for the small employer. No more commitment to premium dollars paid for plans that go unused. The employee receives the benefit when they submit a qualified reimbursement request, so the employer gets to keep any of the promised allotment that employees don’t actually use.
Here are some key points about the QSEHRA:
- Any employer not offering any other group health plan, who has fewer than 50 full-time employees (or equivalents), can offer a QSEHRA.
- The employer can invite both part and full-time employees to participate, or just full-time employees.
- Employees can use the monthly reimbursement to pay health insurance premiums and/or qualified medical, dental or vision expenses. The reimbursements are only income tax free to the employee if they have minimum essential coverage or an ACA qualified major medical plan.
- Only employers can contribute to the QSEHRA.
- The 2021 annual contribution limits are up to $5,300 for individual employees or up to $10,700 for employees with families.
- Monthly QSEHRA allowances accumulate throughout the year. The employee can use the amount monthly or can submit requests sporadically and still receive reimbursements.
- Employees can receive premium tax credits through a government exchange, but the amount of the credit will be reduced by the employee’s monthly allowance.
- Any unused allowance amounts will remain with the employer at the end of the plan year.
What About Offering My Employee A Raise to Pay for Benefits?
A QSEHRA is best used by an employer group that wants to extend benefits to all eligible employees without incurring the additional payroll taxes. Additionally, you cannot dictate how a pay raise is spent, but with a QSEHRA, your per-employee contribution goes only to pay for qualified expenses with the unused portion landing back on your books.
A Solution Worth a Second Look
If you are looking for an affordable benefit offering solution for your small business that will keep your employees happy and healthy, the QSEHRA may be the right option for you.