QSEHRA eligible expenses: What can you reimburse with a QSEHRA?

The qualified small employer health reimbursement arrangement (QSEHRA) is a game-changer for small businesses. It helps them attract and retain talent by providing a benefit that helps employees alleviate the burden of escalating healthcare costs. However, to truly benefit from this health benefit, you need to understand what qualifies as reimbursable expenses.

In this article, we'll outline the eligible expenses you can reimburse with a QSEHRA to help you maximize this valuable employee benefit.

In this blog post, you'll learn the following:

• How the QSEHRA provides budget control for employers.
• The benefits of reimbursing employees for health insurance instead of buying the coverage for them.
• The different types of healthcare expenses a QSEHRA can reimburse.

What is a QSEHRA?

The QSHERA is a budget-friendly alternative to a traditional group health plan. It's a health benefit tailored to small businesses with fewer than 50 full-time equivalent employees (FTEs). The QSEHRA lets employers reimburse employees for eligible medical expenses. This includes individual health insurance premiums.

This setup lets employees pick the health insurance plans that work best for them instead of getting stuck with a group health plan they didn't pick. QSEHRA contributions are tax-deductible for employers and tax-free for employees. This means their allowance won't count as part of their taxable income. This makes the QSHERA a great way to increase employees’ total compensation without increasing their tax burden.

Employees must have a health plan that provides minimum essential coverage (MEC) to participate in a QSEHRA. MEC plans are available on the Health Insurance Marketplace. Coverage from a spouse’s or parents’ group plan may also qualify as MEC. If you use PeopleKeep to administer your QSEHRA, your employees can shop for a qualifying plan right from their account.

Employer contributions to a QSEHRA can be adapted to fit any budget, but can't exceed a specific annual limit set by the IRS.

Here's how it works:

• Employers set a monthly reimbursement allowance. They can vary amounts based on the family status of their employees. Employees can use funds from that allowance for qualified medical care expenses.
• Employees use their own money to pay for medical services, products, and individual health insurance policies.
• Employees provide proof of payment for their monthly health insurance premiums and other out-of-pocket expenses to receive reimbursement from their employer.
• Employers or HRA administrators approve qualified expenses and reimburse employees up to their allowance amounts.

What are qualified medical expenses?

With the QSEHRA, employers can provide tax-free reimbursement for more than 200 types of out-of-pocket medical costs. The IRS outlines eligible expenses in IRS Publication 502. Thanks to the Cares Act, you can also reimburse employees for over-the-counter medications and feminine hygiene products without a doctor’s note or prescription.

Our HRA eligible expense tool provides the complete list of reimbursable expenses.

Let's review some of the most common types of eligible expenses in more detail below.

Insurance premiums

Employees can use QSEHRA funds to cover their monthly premiums. They can purchase these plans directly from a broker or an insurance company. They can also use state or federal marketplaces to find a plan that works for them.

Eligible premiums include:

• Individual health insurance
• Spouse’s group health insurance (as a taxable reimbursement)
• Dental insurance
• Vision insurance
• Medicare
• Medicaid
• CHIP
• TRICARE
• COBRA
• Short-term health insurance
• Long-term care insurance

It’s important to note that not all of these types of insurance qualify as MEC. So, while you need a health plan with MEC to participate, you can request reimbursement for all of these types of coverage.

Prescription drugs and over-the-counter medicine

With a QSHERA, employers can reimburse employees for prescriptions and over-the-counter medications. This provides major financial relief for many Americans. In 2022¹, the yearly expense for prescription medications averaged around $1,400 per person.

Dental expenses

Along with dental plan premiums, a QSEHRA can also reimburse dental care expenses. This includes routine check-ups, cleanings, fillings, and orthodontics.

Vision expenses

A QSEHRA can reimburse vision care expenses in addition to covering vision plan premiums. Vision-related expenses like eye exams, glasses, and contact lenses are eligible for reimbursement. Employees can also receive reimbursement for corrective surgeries, such as LASIK. This can cost² anywhere from $1,000 to $4,000 per eye.

Preventive care

Employees can get reimbursed for costs related to preventive care services.

This includes:

• Vaccinations
• Screenings
• Wellness check-ups

It can also cover the doctor's visit itself, including co-pays. Coinsurance and payments before your deductible are also eligible.

Mental health services

A QSEHRA can cover expenses for mental health services, including therapy sessions and counseling, guided by qualified healthcare professionals.

Alternative treatments

The QSEHRA also covers alternative treatments for those who seek a holistic approach to health.

These include:

• Chiropractic care
• Acupuncture
• Alternative healers
• Dietitian/nutrition services
• Herbal or homeopathic medicines

Some of these services require a doctor’s note to prove they’re medically necessary.

Other types of HRAs

If you're unsure about the QSEHRA, other HRAs can help you reimburse similar out-of-pocket costs.

Additional HRAs include:

• The individual coverage HRA (ICHRA): The ICHRA is similar to a QSEHRA but comes with greater flexibility. It's for employers of any size and doesn't have an annual cap on contribution amounts. This allows employers to offer employees as much as they'd like as an allowance. Employers can also offer different allowance amounts to different employee classes, such as full-time employees and seasonal employees. Eligible employees must have their own individual health insurance coverage to take part in the ICHRA. For example, those covered by a spouse's plan aren't eligible for this benefit.
• The group coverage HRA (GCHRA): GCHRAs, also called integrated HRAs, work alongside traditional group health coverage. Employers often pair this type of HRA with a high deductible health plan (HDHP) to help cover health expenses that fall within the deductible. Unlike the ICHRA and QSHERA, employers can't reimburse monthly premiums with a GCHRA.

Conclusion

The qualified small employer HRA (QSEHRA) has emerged as a flexible health benefit solution for small businesses. It allows them to cover their employees’ health expenses with tax-free reimbursements. But as with any financial arrangement, understanding the specifics is crucial. Employees need to check the specific rules associated with their QSEHRA.

Want to offer a QSEHRA and avoid the headaches of determining eligible expenses? When you administer your QSEHRA with PeopleKeep, our team reviews employee expenses for you. This ensures compliance with IRS rules.

1. Bloomberg - Why prescription drug prices in the U.S. are so high
2. Forbes - How much does LASIK cost