Looking into QSEHRA pros and cons? With more health insurance options than ever, now is the time to understand the new type of employee benefits changing the employer sponsored benefit market: namely, the Qualified Small Employer HRA (QSEHRA). Below are the pros and cons of QSEHRA to serve as a guide for choosing the best solution for your small business.
Qualified Small Employer HRAs (QSEHRA) allow small businesses with under 50 employees to reimburse their employees tax-free for health insurance premiums and medical expenses, if the plan allows. Are you one of the many small business owners mulling over this option to save on health insurance?
You’re not alone.
We’ve put together a list of QSEHRA pros and cons as well as a list of questions you should be asking as you evaluate your options.
QSEHRA Pros and Cons
Wondering what the pros and cons of QSEHRAs are? Let’s start with the good stuff. Here are some of our favorite QSEHRA benefits.
- On ramp to benefits: Roughly 80% of our small business clients are net new to benefits, meaning that QSEHRA is allowing them to help their employees with health insurance costs for the first time, even though they aren’t required by law. This is great for everyone!
- Budget control: Small businesses can set a budget that works for them without the fear or renewal hikes or increasing costs.
- Recruitment and employee retention: Everyone knows benefits are super important for hiring and retaining the best talent. QSEHRA health insurance is a great way for small businesses to extend this offer to employees.
- Simplicity/Focus: The simplicity of QSEHRA will allow you to spend your time where it should be— focused on running your business. Since you are offering a fixed amount per month, there’s no need to spend time & mental energy trying to implement wellness programs & manage your employees’ healthcare spend to control your costs on a traditional group health plan. The right QSEHRA administration platform can make this super simple.
- Greater tax efficiency: QSEHRA allows tax-free reimbursements for premiums and qualified medical expenses (if allowed by the QSEHRA plan design).
- Personalized plan choice: Employees can shop the plan on the individual market that best meets their needs. If one employee prefers their Aetna plan, no problem. If another would like a BlueCross plan because the network includes his preferred doctors, that’s great too!
- Special enrollment trigger: This is a big one! With QSEHRA, when a company enrolls, employees are eligible for special enrollment, which means they can shop for a major medical plan on the individual market at that time (and outside of the typical open enrollment timeframe).
- Plan Flexibility: Unlike the individual coverage HRA, QSEHRAs can integrate with sharing ministries (if accompanied by a MEC plan, TRICARE, and spousal plan premiums. For employers, QSEHRA plans can be changed throughout the year.
- Portability: If an employee leaves your company, they won’t lose their health plan.
Roughly 80% of our small business clients are net new to benefits, meaning that QSEHRA is allowing them to help their employees with health insurance costs for the first time, even though they aren’t required by law.
Wondering what the disadvantages are of QSEHRAs? Remember, QSEHRAs aren’t for every business. Here are a few reasons why.
- Size limits: Only companies with fewer than 50 full-time employees may participate.
- Group plan integration: QSEHRA cannot be offered with a group plan.
- Owner participation: Owner eligibility for QSEHRA depends on how your business is set up. That means in some circumstances owners are not eligible to participate in a small business HRA.
- Allowance maximums: There are reimbursement limits set by the IRS. Annual allowance limits go up slightly every year along with inflation. For an HRA without these limits, consider an ICHRA.
- What can be reimbursed: Premiums only and premiums + medical expenses are the only two options for reimbursement. Medical expenses only is not an option.
- Health of the individual insurance market: Some areas are better for QSEHRAs than others, depending on how competitive and affordable the options are in the individual health insurance market. To see how it is in your location, check out our Qualified Small Employer HRA Heat Map tool.
Is QSEHRA right for my business?
We’ve put together a list of questions you can ask to see if a QSEHRA is right for your business.
- Do you lack the time and bandwidth to manage the administrative burden?
- Do you want to take care of your employees?
- Do you want to boost retention and recruitment in a tight labor market?
- Are you growing?
- Are you looking to save on taxes?
- Are traditional health plans cost prohibitive for you?
- Are you an international company with US workers that doesn’t want to deal with the US health system?
- Are you having issues extending coverage to remote workers?
If the answer is yes to some of the above, it’s worth having a conversation. QSEHRA solves for all of those common pain points.
Do you need to speak to someone to determine which HRA is best for your business or client? We are here to help! Schedule a call with someone on our team of HRA experts for personalized guidance.
This post was originally published in 2019 and has been updated in 2023 to reflect the latest policy and regulatory updates.