8809 / When is an employer eligible to offer QSEHRAs?

Only employers with fewer than 50 full-time employees are eligible to offer qualified small employer health reimbursement arrangements (QSEHRAs).¹

Further, an employer offering a QSEHRA may not otherwise offer a group health plan (including traditional HRAs or health FSAs) to employees, including plans that offer only benefits that are treated as excepted benefits under the ACA (such as dental or vision benefits). For employers that have sponsored non-calendar year plans, eligibility will be lost for any given month if the employer offers health coverage that provides coverage on any day of that month.

The employer is also prohibited from endorsing a particular policy, form or issuer of health insurance, but may provide employees with information about the health insurance marketplaces and premium tax credit without violating this requirement. Employers continue to be eligible to offer QSEHRAs if they only offer coverage to former employees or if the employer continues to allow employees to access funds that were accumulated in a traditional HRA in prior years (or that were carried over from a prior year’s FSA contribution).

S corporations may reimburse two percent shareholder-employees for health insurance premiums without losing their status as “eligible employers.”

Employers that are treated as a single employer under IRC Section 414 are also treated as a single employer for QSEHRA purposes, so that if one employer in the group offers group health coverage, all other employers become ineligible to offer QSEHRAs.

Employers may, however, continue to contribute to employees’ health savings accounts (HSAs) or permit employees to contribute to their own HSAs without losing eligibility for QSEHRA purposes.

If an employer provides a non-calendar year QSEHRA and at some point begins to employ more than 50 employees (so that it becomes an applicable large employer (ALE) that is ineligible to offer a QSEHRA), it becomes ineligible to offer a QSEHRA as of January 1 of the year that it becomes an ALE (i.e., January 1 of the year following the year in which it began to employ 50 or more full-time employees or their equivalent). In this case, the QSEHRA may continue to reimburse employees for expenses incurred during the months of the prior year when the QSEHRA was provided.²