QSEHRA: how a small employer HRA works

Who can offer a QSEHRA

• Fewer than 50 full-time employees, including full-time equivalents, in the prior year. IRS Notice 2017-67 ties this to not being an applicable large employer.
• No group health plan. HealthCare.gov says offering a group plan, such as SHOP coverage or a flexible spending account (FSA), disqualifies the employer.
• Same terms for every eligible employee. Amounts can vary only by age and the number of people covered.
• Employer money only. The arrangement is funded solely by the employer. Employees can't contribute through salary reduction.

The plan may leave out employees with under 90 days of service, employees under age 25 at the start of the plan year, part-time or seasonal employees, union employees whose health benefits were bargained, and nonresident aliens with no U.S. earned income. Self-employed owners can't be reimbursed through it.

QSEHRA limits by year

Employees who join partway through the year get a prorated amount. Unused amounts can carry over to the next year if the plan allows it, but the yearly cap still applies to new money.

How reimbursement works

1. The employee gets minimum essential coverage. HealthCare.gov's examples include Marketplace plans, job-based plans (such as a spouse's), Medicare, and Medicaid and CHIP.
2. The employee pays first, then submits proof of payment for premiums or other eligible medical expenses.
3. The employer reimburses tax-free, usually monthly, up to the amount in the employee's notice.
4. The employer reports the benefit on the W-2, in box 12 with code FF.

If an employee doesn't have minimum essential coverage for a month, reimbursements for that month's expenses become taxable income, according to IRS Notice 2017-67.

The written notice and its deadline

Current employees must get a written notice 90 days before each plan year starts. New employees must get it on or before the first day they're eligible. Email is allowed if it follows IRS electronic-delivery rules.

• The amount of the employee's permitted benefit and the date it starts.
• A statement that the employee must tell any Marketplace about that amount when applying for help with premiums, and should keep the notice for their tax return.
• A statement that reimbursements become taxable for any month without minimum essential coverage.

Missing the notice carries a penalty of $50 per employee, up to $2,500 per calendar year, under section 6652(o), as described in Notice 2017-67.

How a QSEHRA affects premium tax credits

• Affordable QSEHRA: HealthCare.gov says the employee can't get a premium tax credit for Marketplace coverage.
• Unaffordable QSEHRA: the employee may still get a credit, but it is reduced by the QSEHRA amount.

HealthCare.gov says enrolling in SHOP is generally the only way to get the Small Business Health Care Tax Credit, and a QSEHRA employer can't offer a group plan. See premium tax credit.

Where Gabriel fits

Employees with a QSEHRA often buy a Marketplace plan. Gabriel can quote plans for their ZIP code and household and open their own application with a licensed agent in most states. Employers with 25 or more employees can add Gabriel for Teams, a care membership, alongside a health plan. It is not group health insurance and not an HRA, it doesn't replace a health plan, and it never satisfies the ACA employer mandate.

Gabriel is not an insurer. Health insurance quotes and enrollment are handled by Gabriel Labs, Gabriel's separately licensed insurance agency. Check plan design and tax treatment with a benefits attorney or tax advisor.