QSEHRA rules: what employers need to know

Rule 1: Eligibility (who can offer it)

Only employers with fewer than 50 full-time-equivalent employees that do not offer a group health plan can offer a QSEHRA. If you grow to 50+ FTEs, you''d move to ICHRA instead. You also can''t run a QSEHRA and a group plan at the same time.

Rule 2: Contribution cap

QSEHRA contributions are limited to an annual IRS maximum for self-only and family coverage, adjusted each year. You can contribute any amount up to the cap; there''s no minimum. This cap is the defining constraint versus ICHRA, which has none — confirm the current year''s figures, as they change annually.

Rule 3: Same terms for all eligible employees

A QSEHRA must generally be offered to all eligible full-time employees on the same terms. Amounts can vary by age and family size, but QSEHRA does not use ICHRA''s 11-class system — you can''t carve the workforce into classes with different deals.

Rule 4: The QSEHRA notice

Employers must give eligible employees a written notice (generally at least 90 days before the start of the plan year) stating the benefit amount and explaining how it affects any ACA premium tax credit. New hires are notified before their eligibility begins. Missing the notice carries penalties, so don''t overlook it.

Rule 5: Eligible employees and coverage

Employees need minimum essential coverage to be reimbursed tax-free. Certain employees can be excluded (for example, those who haven''t met a short service requirement, part-time or seasonal workers, or those under 25), but among included employees the same-terms rule applies.

Rule 6: Substantiation

Like any HRA, QSEHRA reimbursements must be substantiated — employees prove coverage and eligible expenses before being reimbursed. This keeps the reimbursements tax-free. An administrator or broker automates the proof step.

Rule 7: Coverage and subsidy interaction

A QSEHRA reduces (rather than eliminates) an employee''s ACA premium subsidy by the benefit amount — an important difference from an affordable ICHRA, which generally disqualifies the subsidy entirely. For lower-income employees with large subsidies, this partial-reduction treatment can be more favorable.

Common QSEHRA mistakes

• Offering a QSEHRA while also maintaining a group plan (not allowed).
• Exceeding the annual contribution cap.
• Skipping or mistiming the required employee notice.
• Reimbursing employees who lack minimum essential coverage.
• Not accounting for how the benefit reduces an employee''s ACA subsidy.

Rule 8: No group health plan

A QSEHRA is only for employers that do not offer a group health plan. You cannot run a QSEHRA and a traditional group plan at the same time — the QSEHRA is designed as the alternative to group coverage for smaller employers, not a supplement to it.

Rule 9: Proration for mid-year eligibility

The annual QSEHRA limit is prorated for employees who become eligible partway through the year. Someone hired mid-year receives a portion of the cap based on their months of eligibility, rather than the full annual amount.