If your goal is to maximize employee benefits and minimize cost, it might be worth getting to know the QSEHRA and HSA. We will break down their value as separate and conjoined HR benefits of the QSEHRA and HSA.
What is a QSEHRA?
QSEHRA or Qualified Small Employer Health Reimbursement Arrangement allows employers to contribute tax-free dollars each month that employees can use to purchase individual health insurance or for medical expenses.
What “Small Businesses” Are Eligible For a QSEHRA?
- The business must have fewer than 50 employers (IRS section 4980H(c)2)
- Not offer a group health plan
A QSEHRA allows employers to create tax efficiency and budget control resulting in optimized benefits for employees (at a lower cost to employees). QSEHRA benefits include:
- Tax-Free Savings – Employers can set aside 100% tax-free dollars that employees can use for healthcare expenses. This means more money goes directly to your HR benefits.
- Employee Flexibility – Employees can use allocated QSEHRA money to purchase their own health insurance (and pay premiums) or pay directly for healthcare costs.
- Precise Budgeting – Healthcare costs continue to rise, forcing small business to make important yet imprecise decisions. No one can perfectly forecast the prices of health insurance plan premiums next year. QSEHRA removes this imprecision. Employers can set aside exact dollars (and forecast if they want to increase or decrease these funds next year).
If you need more help understanding how a QSEHRA works (and the IRS requirements) or how to use it to save money and pay for healthcare costs for employers check out this QSEHRA guide for small employers from one of our partners, Take Command Health.
What is an HSA?
An HSA or Health Savings Account is a personal savings account for health expenses.
In more technical terms, an HSA is a tax-free interest-bearing health account that can be used for health-related expenses with annual contributions limits set by the IRS.
Health Savings Account (HSA) Benefits
HSA benefits are not only measured in financial gain, but also in the unique ability to create flexibility in a stringent healthcare market. With an HSA, you can save, spend or invest your HSA. HSA benefits include:
- Tax-free contributions, growth, and distributions (if used for qualified out-of-pocket medical expenses).
- You can invest your health savings for the long term with stocks, bonds, ETFs, or mutual funds (if available from your HSA provider).
- No use it or lose it spending requirement. Unspent HSA funds are rolled over each year, building a nest egg for your future retirement just like a 401(k) or IRA.
How a QSEHRA and HSA can work together
Under IRS rules, in order for a QSEHRA and HSA to work together, one condition must be met, the QSEHRA can reimburse insurance premiums only. This makes the QSEHRA HSA-eligible.
Employees can use QSEHRA funds (provided by their employer) to pay for monthly health insurance premiums and HSA funds to pay for qualified out-of-pocket medical expenses. The best news is that all of this money is 100% TAX-FREE!
A QSEHRA and HSA provide a clear path to limit increases in healthcare costs and healthcare benefits for both employees and employees. They create flexibility, control, and long-term savings in an otherwise stringent and limiting healthcare world.
If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.