Small businesses often struggle to afford to offer employer-provided healthcare insurance coverage. This can be a problem because many workers believe healthcare insurance is a significant workplace benefit.
The good news is that a QSEHRA allows small businesses to help workers get insurance in a way that the company can afford. But what is a QSEHRA?
QSEHRAs allow employers to provide some reimbursement for medical expenses -- although reimbursement limits apply. This guide explains how these arrangements work and outlines their limitations.
What is a QSEHRA?
QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. A QSEHRA allows eligible small businesses to reimburse employees for qualifying medical expenses, including healthcare insurance premiums. Only small employers are eligible, which typically includes those with 50 or fewer workers.
Employers can provide tax-free reimbursements, provided the employees are enrolled in health plans that meet the Affordable Care Act's minimum coverage requirements. There are limits to these reimbursements, though, as employers are allowed to reimburse up to $6,350 for self-only coverage and $12,450 for family coverage in 2025.
Eligibility criteria for QSEHRA
Small employers are eligible to offer a QSEHRA provided the companies are not considered an Applicable Large Employer (ALE) under the Affordable Care Act. This usually means the company must have fewer than 50 full-time employees or full-time equivalents. There are also additional requirements to meet:
The exact terms must apply to all employees
There is no minimum reimbursement, but there is a maximum reimbursement
Workers must receive a written QSEHRA eligibility notice 90 days before the new year
Employees must prove their health plan meets minimum coverage standards before reimbursement
Employees must provide proof of medical expenses for reimbursement
Employers are not allowed to offer QSEHRAs if they offer group plans, and they cannot endorse any particular healthcare plans.
What are the 2025 QSEHRA Contribution limits, and how do they compare with 2024 limits?
Beyond understanding the QSEHRA meaning, employers and workers need to comprehend the QSEHRA limits for 2025.
The IRS sets maximum annual employer contribution limits each year. These are some of the most important QSEHRA rules to know. Here are the QSEHRA limits for 2025:
Employers can reimburse up to $6,350 for employees purchasing self-only coverage in 2025. This is up from $6,150 in 2024.
Employers can reimburse $12,800 for employers purchasing family-only coverage. This is up from $12,450 in 2024.
Many employees pay their health insurance premiums on a monthly basis, so it is helpful to consider how much employers can provide not just on an annual basis but also on a monthly basis. Here are the monthly limits for 2025:
Self-only coverage: $529.16 up from $512.50 in 2024
Family coverage: $1,066.66 up from $1,037.50 in 2024.
How does the IRS set QSEHRA limits, and how did tax reform impact the limits?
QSEHRA limits are determined by the IRS each year based on cost-of-living adjustments.
The IRS uses the Consumer Price Index to determine how much costs are rising and adjusts the maximum employer reimbursement amount upward based on the year-over-year increase in the price index.
When the Tax Cuts and Jobs Act was passed in 2017, it changed the way the increase to QSEHRA limits is calculated each year.
Specifically, the IRS now uses Chained CPI. Chained CPI takes into account the fact that consumers change their buying behavior when prices rise, so Cost of Living increases are not as large as the other price indexes show -- even when inflation rates are higher.
As a result of this change, QSEHRA limits have been increasing at a slower rate since the reforms took effect.
What happens if QSEHRA limits don't meet employee needs?
While QSEHRA is designed to help small businesses ensure their workers can get affordable health insurance coverage, unfortunately, the cost of a health plan providing minimum essential coverage may exceed the allowable reimbursement limits.
This means employees can't always get tax-free reimbursements for the full amount of the premiums they must pay for the coverage needed to be eligible for the reimbursements in the first place.
The good news is, there are other options for companies that want to help workers afford coverage. Specifically, companies can offer an Individual Coverage Health Reimbursement Arrangement (ICHRA).
There are important differences between ICHRAs and QSEHRAs. ICHRAs are not restricted only to small businesses, and companies have more flexibility in deciding on the size of the health insurance stipend they wish to offer.
If your company wants to provide employee healthcare coverage benefits, ICHRA can be a great option. You have more control over costs than a traditional group health insurance plan provides, and your employees get the flexibility of choosing the plan that's right for them.
Thatch can make offering ICHRAs easy and provide your staff with the support they need to choose the healthcare coverage that's right for them. Contact Thatch today to learn more.
