A QSEHRA is a Health Reimbursement Arrangement (HRA) designed for small businesses that do not provide group health insurance. Employees can utilize the pretax funds alongside a Marketplace health plan or Medicare.
This article discusses the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), a special type of HRA that small businesses use.
An HRA is an account in which employees build up tax-exempt funds while working for their employer. The employer contributes the funds and determines the contribution amount.
This amount is usually consistent for all employees within a specific category. Once the employee’s Marketplace or Medicare health insurance coverage applies, the person may use the money to cover any remaining out-of-pocket expenses.
One type of HRA is a QSEHRA, specifically designed for small businesses that do not offer their employees a group health insurance plan.
What is considered a small employer?
To set up a QSEHRA, the employer must be a small business with fewer than 50 employees.
In addition to being limited in size, employers offering a QSEHRA cannot provide a group insurance plan and must offer it universally to all full-time employees.
By law, an employer’s full-time W-2 employees are eligible for a QSEHRA. Sometimes, an employer may also invite part-time workers to join.
The reimbursement is exempt from tax and is a standard amount. It can only vary based on the employee’s age and the number of people it covers, such as the employee, their spouse, and dependents.
While the employer can determine the amount to contribute per employee, this cannot exceed the Internal Revenue Service (IRS) cap, which is $6,350 in 2025.
A small business can establish a QSEHRA anytime, provided it meets the necessary criteria. The business can administer the account itself or employ a third-party administrator.
Once it sets up the account, the business must provide written notice to new employees upon their eligibility and to current employees 90 days before each plan year begins.
A person cannot opt out so long as they are employed by the business offering the QSEHRA. However, they can use the funds with either a Marketplace insurance plan or Medicare or Medicaid if they qualify.
Typically, employees receive a letter notifying them of their enrollment in a QSEHRA. If they do not yet have qualifying insurance, they are granted a special enrollment period to acquire the best coverage.
A Health Reimbursement Arrangement (HRA) allows employees to gather tax-exempt funds from their employer to cover the remaining out-of-pocket medical expenses after their health insurance coverage applies.
There are different types of HRAs, and a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a specific type of HRA designed for small businesses with fewer than 50 employees.
With any HRA, the employer determines the contribution amount, which is consistent for all employees in the same category and is subject to an annual cap from the Internal Revenue Service (IRS).
