Reasons to Consider a QSEHRA for Small Business Health Benefits

In 2020, the IRS implemented increases in allowance caps for the qualified small employer health reimbursement arrangement (QSEHRA) for both single employees and employees with a family. Companies are allowed to reimburse single employees $5,250 per year and employees with families $10,600 per year in 2020.

According to PeopleKeep’s 2020 QSEHRA Annual Report, one of the most powerful benefits of a QSEHRA is the ability employers have to set an allowance cap that fits their budget. As a result, they never have to worry about exceeding it. And as long as they are in line with, or below the government-regulated allowance cap, the QSEHRA allows small businesses to compete with larger employers with robust benefits packages.

The report shows that employers have a low chance of paying out the full budgeted allowance amount. Only 18% of single employees and 19% of employees with a family used their entire allowance.

In 2019, the average allowance amount for single employees was $280/month and $514/month for employees with a family. And in 2019, each HRA participant averaged at least one reimbursement per month, totaling 12 average reimbursements, per employee, for the entire year.

QSEHRAs permit employees to use their allowances for both premium and non-premium expenses, which is not possible under a group health benefit. According to the PeopleKeep report, the five most common non-premium reimbursements employees submitted were for prescription drugs, medical office visits, chiropractic care, dental care and mental health counseling. “These expenses speak well to the unique appeal that an HRA has for employees. Since individual health insurance covers a broad range of medical care, it is important that small business owners have resources like the qualified small employer HRA to offer a way for employees to make their health care affordable,” the company says.

In its first state-by-state analysis, PeopleKeep compared the top five states by the highest average allowance amounts with the highest individual health plan premium costs. The company says this is important to review because businesses in states with high health expenses should increase allowance amounts as a result. Results of the comparison show that businesses in Rhode Island, North Dakota and Connecticut are doing well to correlate the allowances they offer with the cost of health insurance in their states.

The company says its report shows the QSEHRA enables small businesses to effectively compete with larger businesses offering group health insurance.