Providing Employees with Health Benefits
Without Using a Group Health Insurance Plan

Employers with less than 50 full-time employees and that don’t offer a group health plan can contribute to their employees’ health care costs through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

A QSEHRA allows small employers to provide non-taxed reimbursement of certain health care expenses, like health insurance premiums and coinsurance, and qualified medical expenses, to employees who maintain minimum essential coverage.  Employees must provide proof of their actual medical costs to receive reimbursement.

The money reimbursed is tax-free for employees and is tax-deductible by employers.

To qualify for a QSEHRA, an employer generally must:

  • Have fewer than 50 full-time employees
  • Provide the arrangement on the same terms to all full-time employees
  • Not offer a group health plan or a flexible spending arrangement (FSA)

In tax year 2020, a company with a QSEHRA may reimburse single employees up to $5,250 per year and employees with families up to $10,600 per year. These are up from the 2019 tax year maximums of $5,150 for individual coverage and $10,450 for family coverage.  These limits are set by the Internal Revenue Service (IRS) because the employer is eligible to take a business tax deduction for its costs and the benefit to employees is tax-free.

Because the Affordable Care Act (ACA) governs these arrangements, participating employees must provide proof that they carry the minimum essential health coverage required by the ACA.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.