Big is not always better and small is not always easier and in the case of a QSEHRA, this is certainly true. A QSEHRA or Qualified Small Employer Health Reimbursement Arrangement is sometimes referred to as a Small Business HRA. But a QSEHRA is very different than an ICHRA Individual Coverage Health Reimbursement which we will address in more detail in another article. A QSEHRA may be compatible with an HSA (Health savings account) but there are limitations. Confused? That’s OK. That is why the experts at MIB Health Insurance are here to help you navigate your health insurance journey. We have over 30 years of expertise in the complexities of small business health insurance and can help you find the perfect health insurance plan for the unique health care needs of your company and your employees. A QSEHRA may be a wise part of your health insurance strategy.
So, what is a QSEHRA and why is it important to understand what it is and how it might benefit you, your employees, and your company. A QSEHRA is a tax benefit approved by the IRS to provide a healthcare benefit and tax savings for small businesses and their employees. A QSEHRA is available for businesses with less than 50 full time employees that does not offer a group health insurance plan. There are limitations on the types of health insurance plans employees can participate in under the QSEHRA guidelines and plans must meet the requirements of the Affordable Care Act (ACA).
How Does a QSEHRA work?
An employer must first design a QSEHRA plan that outlines all of the terms and reimbursement rules including how much money they will contribute towards the employee’s health care plan. There are no minimum reimbursements but there is an annual maximum. The nice thing about this type of plan is that an employer can customize the benefit for each employee as long as they stay within the guidelines of nondiscriminatory testing. For example, reimbursement amounts can be different for employees based on age or how many dependents they have. Next, the employer will create legal plan documents explaining the benefit and what it covers. The employer must choose a start date and notify the employee of the QSEHRA benefit every year. Employers then maintain documentation as they manage the submitted medical bills and report them on the employee’s W-2 Form.
Employees find their own eligible individual or family health insurance plan through the health insurance marketplace or if eligible for reimbursement a spouse’s employer. They then need to submit proof that insurance is a qualified plan to the employer or plan administrator. Employees must make payments to the insurance companies and wait for the reimbursement from the employer or administrator of the plan after they submit proof each month that payment to the insurance company has been made. These types of medical expenses may be reimbursed through a QSEHRA: Insurance premiums (health, dental, vision, etc.)
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- Coinsurance
- Deductibles
- Copays
- Prescription drugs
- Over-the-counter drugs
Employees are not eligible for cash-out payments if they do meet the reimbursement limit in any given year. The employer keeps the remaining balance and has the option to roll it over to the next year on the employee’s behalf. Once all of the QSEHRA requirements are met, the employer will then process the approved medical reimbursement with tax-free money.
Is a QSEHRA plan worth all of the work?
The answer to that question is… maybe. Every employer and employee of a small business has different health care needs. A QSEHRA offers customized health insurance benefits that may provide a substantial financial and tax benefit to both. These plans were created to offer an affordable option to keep insurance premiums low and offer an alternative for small businesses to help with medical and insurance expenses. This benefit option provides tax incentives avoiding payroll taxes for employers and income taxes for employees. A QSEHRA also offers flexibility for a small business owner to decide how much they want to reimburse an employee for medical and insurance expenses allowing plans to be customized for each employee’s needs. This saves unnecessary health insurance expenses for employers and maximizes benefits for employees.
Consider these examples:
Meet Ron: Ron works for a small locally owned hardware store with 25 employees. Under his proposed QSEHRA benefit, his employer offers Ron $500 per month with the QSEHRA pre-tax. Ron’s family health insurance policy costs him $800 a month. Ron can deduct the balance $300 ($800-$500) as a pre-tax deduction and save additional tax dollars. On $3,600 a year with an estimated 27% tax savings THE QSEHRA gives an additional $972 health insurance benefit and tax savings to Ron.
Meet Jim: Jim owns a construction company with employees with a wide range of income levels. Jim uses the QSEHRA to allow lower-income employees take advantage of subsidies on the marketplace to lower their health insurance cost in addition to receiving a taxable benefit from their employer to pay for their health insurance. The higher income employees can take advantage of pre-tax deductions of their health insurance and a taxable benefit from their employer.
Alex is a laborer who has worked for Jim for years. He has a family of four and a household income of $90,000 a year. Alex can take a taxable $500 a month benefit and still qualify for $750 a month in a subsidy on the marketplace. Alex and his and family were able to get an insurance plan with $0 monthly premium because of the two benefits working together.
Mary is a manager who is 55 years old and single, with an annual income of $85,000. Mary was able to take the $500 from the employer and an additional $30 a month for her health insurance pre-tax.
In these cases, using the QSEHRA saves each individual, family or employer insurance costs and tax benefits. But it can take someone who understands the complexities of the QSEHRA to simplify it for employers and employees.
How MIB Health Insurance Can Help
As you can see the QSEHRA process can be daunting for employers and employees alike. That is where MIB can help. Our team of insurance agents are highly trained in the strategy of QSEHRA’s for our small clients. Mike Dietz, owner of MIB Health Insurance says, “Our company strives with excellence to help our small business clients save money on health insurance and taxes. It is one of the things we do best.” A QSEHRA is managed on the employer side and the employee side and the administration of a plan like this can be overwhelming. Many small business owners discard it as an option because it seems too difficult to manage. That is where MIB can help you make the best decision to save time and money. We offer a wide range of QSEHRA services.
For employers
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- MIB works with the employer to design their customized QSEHRA plan.
- We create and produce all of the legal QSEHRA plan documents.
- We charge a low one-time fee of $450 for the plan documents.
- We provide annual notifications.
- We manage the verification that the employees have a qualified plan each month to get reimbursed.
- We give the employer one invoice with all the employee’s different insurance companies on it.
- We simplify the process for the employer to do payroll deductions to get the full pre-tax deductions for employees.
- We advise employers and employees on choosing the best insurance plan on the marketplace.
- We calculate deductions after-tax for the balance of the employee’s health insurance.
Basically, we take over the administration function for employers making the management of the QSEHRA plan simple and easy for the employer.
For the employees.
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- We offer a professional insurance agent to help employees find a plan that meets their unique health insurance needs.
- We find the best plans to cover their doctors, prescription drugs, and compare deductibles, and premiums to make sure they are saving the most money.
- MIB pays the insurance company directly. There are deductions from the employee’s paycheck and money paid from the employer monthly.
- MIB takes care the substantiated proof of insurance, so employees do not need to submit proof of insurance each month.
- If an employee’s income is low, MIB can show employees how to take the benefit from the employer as taxable income and maximize the subsidy from the marketplace.
In simple terms, we help with the research and choice of a health insurance plan for the employee and make the monthly process of the QSEHRA plan simple and easy.
Understanding if a QSEHRA is right for you and your employees can be complicated. The health insurance professionals at MIB Health Insurance are knowledgeable about the specific benefits and liabilities of QSEHRA benefits. We can help you design and manage your QSEHRA and help your employees make the best health insurance decisions so that both of you maximize your health insurance savings and tax benefits.
MIB Health Insurance is a family-owned health insurance brokerage with a team of caring health insurance professionals in the Fox Cities who want to understand your unique health insurance story. Together you can find the right health insurance solutions for you and your family. The Health Insurance experts at MIB are committed to providing peace of mind to help you understand your health insurance choices. Call a MIB Health Insurance expert at 920-731-2100 to see if a QSEHRA might benefit you.