For years, employers have been actively providing support for the healthcare needs of their employees. However, smaller businesses faced difficulties in managing costs and often required assistance in finding affordable healthcare options. To address these challenges, Qualified Small Employer Health Reimbursement Accounts (QSEHRAs) were created by the 21st Century Cures Act in December 2016.
These accounts are growing in popularity among employers due to their appealing cost control options. So, what are QSEHRAs, how is their popularity growing, and what does their future hold?
What are QSEHRAs?
Qualified Small Employer Health Reimbursement Arrangements, or QSEHRAs, are employer-sponsored benefits that enable qualified small employers to reimburse employees for qualified medical expenses if they do not sponsor group health insurance, or dental or vision care.
A QSEHRA allows small employers to provide non-taxed reimbursement of certain health care expenses, like premiums and coinsurance, to employees who maintain minimum essential coverage.
Qualified Small Employer Health Reimbursement Arrangements, or QSEHRAs, are employer-sponsored benefits that enable qualified small employers to reimburse employees for qualified medical expenses if they do not sponsor group health insurance, or dental or vision care.
Once an employee enrolls in a qualified individual plan, the employer reimburses for their premiums with tax-free funds, up to an annual maximum. A list of frequently asked questions and more information on QSEHRAs are available in "QSEHRA: A Brief History and FAQs."
Successful Launch
In 2018, Employee Benefits News provided insights regarding the first year of QSEHRA. They referenced a PeopleKeep study revealing that 71% of employers adopting QSEHRAs previously did not offer any employee coverage. EBN also detailed the cost-effectiveness and flexibility of QSEHRAs empowered small businesses to effectively manage expenses.
Need, Growth, and Success
According to the Kaiser Family Foundation's 2022 Employer Health Benefits Annual Survey, only 39% of companies with 3-9 employees provided any form of healthcare coverage in 2022. This highlights a significant need that can be met by the implementation of QSEHRAs.
The HRA Council's Growth Trends for ICHRA and QSEHRA 2020 to 2022 reported that up to 85% of small to midsize companies first offered healthcare coverage after the introduction of ICHRAs and QSEHRAs. They also found that QSEHRA participant adoption rates grew by 70% between 2020-2022. PeopleKeep's 2023 QSEHRA Annual Report presented several key insights on QSEHRA offerings, allowances, and usage, including:
- For the past six years, the average QSERHA allowance offered by employers has increased consistently year-over-year.
- Single employees without dependents received the highest increase in their monthly allowance, at an average of 3.9%.
- Employers with 1-4 employees offered an average monthly allowance 8.4% higher than those with 20-49 employees.
- Only 10% of employers provided an allowance that reached the federally mandated annual limit.
- Among participants, 40% were single without dependents and 30% were married with dependents.
- More than a third of reimbursements (about 36%) were for multiple coverage premiums, such as dental and vision.
In their separate 2023 Nonprofit QSEHRA Annual Report, PeopleKeep found that 67% of nonprofit organizations had not offered any benefits prior to the availability of QSEHRAs. More than half (56%) cited affordability as their limiting factor. However, since 2018, the average QSEHRA monthly allowance offered by nonprofits has increased by about 55%. Given that nonprofit employees often face lower salaries than their for-profit counterparts, the ability to provide practical benefits like QSEHRAs could prove crucial for this sector's ability to attract and retain talent.
The Future of QSEHRAS
As mentioned above, there was a remarkable 70% growth in QSEHRA adoption between 2020-2022. When offered a QSEHRA or ICHRA, nearly six out of 10 employees opt for one. Although this approaches the average acceptance rate for employer-sponsored group coverage, it suggests that some employees may perceive a lack of necessity, affordability, or readiness when it comes to health insurance. Through effective and efficient educational initiatives, employers can play a significant role in helping participants understand their healthcare needs, assess affordability, and choose the option that will work best for them.
Are You Ready to Offer QSEHRAs?
Employers rely on their TPAs to help address employee education needs in addition to efficiently administering their QSEHRA plans and other benefits. As these accounts continue to grow in popularity, TPAs that offer QSEHRAs as an option for qualified small employers can find a valuable path for growth.
DataPath has been a full-service TPA solutions provider for nearly four decades. The company’s cloud-based Summit platform is the industry’s first all-in-one solution for CDH, HSA, Well-Being, COBRA, and Billing administration. Please enter your email (above right) to be notified when new blog articles are published.