The following are excerpts from our free eBook, The Comprehensive Guide to the Small Business HRA .
If you’re ready to offer employees more flexible options for health insurance, setting a budget for your qualified small employer health reimbursement arrangement (QSEHRA), also called the Small Business HRA, is an important step.
Many businesses aren't sure where to start, though. "How much should I offer my employees through a QSEHRA?" is one of the most common questions we hear at PeopleKeep.
To help you arrive at the right answer for your business, we're going to walk you through a few strategies you could use to determine your QSEHRA budget.
As long as you remain at or below the federal maximum allowance caps ($6,350 annually for the self-only allowance and $12,800 annually for the family allowance in 2025), the budget you set is entirely up to you.
If you previously offered employees group health insurance, there are two strategies for budgeting for a QSEHRA.
One strategy is to reduce the company’s health benefits costs by offering lower annual allowances. For example, if you were spending $8,000 per employee annually under your group health insurance plan, you can save the business by cutting this amount to $6,000 per employee under an HRA.
Keep in mind, however, that the purpose of benefits is to support your recruitment efforts and improve employee retention. Slashing benefits might save you money in the short term, but you risk alienating employees over time.
A second strategy is to allocate the same amount toward your HRA annual allowance as you paid under your group health insurance plan. Keep in mind that the business only incurs costs if workers use their monthly allowance to pay for eligible medical expenses. The company keeps any funds employees don’t use. For example, if the business makes $100,000 in allowances available but employees only end up using $80,000, the company keeps the $20,000 difference.
Employees using health insurance reimbursement typically utilize about 87 percent of the allowance granted them through their employer, according to PeopleKeep data.
When you know how much you can spend, you can set monthly allowances—the amount of money you’ll give employees each month to reimburse their medical costs.
There are two kinds of allowances available:
As you consider how much to give your employees for their monthly QSEHRA allowance, it can help to take a look at what other businesses in your state and industry offer.
In our QSEHRA Annual Report we analyzed allowance amounts by state and business size.
As we discuss in the report, allowance amounts vary widely from state to state.
For 2023, the allowances in the most popular states for the QSEHRA were:
To learn more about choosing a QSEHRA for your business, including information about how to set a budget for the HRA, download our free eBook, The Comprehensive Guide to the QSEHRA.
This blog post was published on March 7, 2017. It was last updated on October 22, 2024, to reflect the latest QSEHRA allowance caps.