QSEHRA for Small Employers
Reimburse employee health insurance and medical expenses without setting up a traditional group health plan.
A QSEHRA, or Qualified Small Employer Health Reimbursement Arrangement, allows certain small employers that do not offer group health insurance to reimburse employees for qualified medical expenses, including many individual health insurance premiums. HealthCare.gov explains that a QSEHRA is for small employers that generally have fewer than 50 employees and do not offer a group health plan. HealthCare.gov QSEHRA explanation
| Email Steve | Compare Group Options | Compare ICHRA |
What Problem Does a QSEHRA Solve?
Many very small employers want to help employees pay for health insurance, but they do not want the cost, participation rules, or administration of a traditional small group health plan. A QSEHRA can let the employer set a fixed reimbursement budget while employees choose their own qualifying coverage.
Simple example: Instead of buying one group policy for everyone, the employer may reimburse eligible employees up to a set monthly amount for approved medical expenses and health insurance premiums, as long as the QSEHRA rules are followed.
2026 QSEHRA Reimbursement Limits
For taxable years beginning in 2026, the IRS QSEHRA reimbursement limits are $6,450 per year for self-only coverage and $13,100 per year for family coverage. IRS Revenue Procedure 2025-32
When a QSEHRA May Be a Good Fit
A QSEHRA may work well when:
✔ You have a very small business.
✔ You do not offer a group health plan.
✔ Employees are already buying their own health insurance.
✔ You want predictable employer costs.
✔ You cannot meet carrier participation requirements.
✔ Employees live in different areas or need different insurance companies.
When a Traditional Group Plan May Be Better
A traditional small group health insurance plan may be better when the employer wants one company-sponsored plan, needs stronger recruiting benefits, has enough employee participation, or wants employees on the same carrier network.
See also my page on small group participation and contribution requirements.
QSEHRA vs. ICHRA vs. Small Group Health Insurance
| Feature | QSEHRA | ICHRA | Traditional Group Plan |
|---|---|---|---|
| Best for | Very small employers | Employers wanting more flexibility | Employers wanting one group plan |
| Employer controls budget | Yes | Yes | Partly |
| Individual insurance allowed | Yes | Yes | No |
| Available to larger employers | No | Yes | Yes |
| Annual federal dollar cap | Yes | No | No fixed federal reimbursement cap |
| Related page | This page | ICHRA | Small Group Health Insurance |
Covered California and Premium Tax Credit Warning
A QSEHRA can affect an employee’s premium tax credit through Covered California or another Marketplace. HealthCare.gov says employees offered a QSEHRA should use the QSEHRA information when applying for Marketplace coverage and premium tax credits. HealthCare.gov QSEHRA and Marketplace help
Employees who receive Covered California subsidies should not ignore the QSEHRA. They may need to report the QSEHRA amount when applying for or reconciling premium tax credits. See my related page on IRS Form 8962 and premium tax credits.
Owner and Business Structure Issues
QSEHRA treatment can be different for sole proprietors, partners, more-than-2% S-corporation shareholders, and C-corporation owners. Owner eligibility and tax treatment should be reviewed carefully with a CPA or tax adviser.
- Schedule C Health Insurance Deduction
- Partnership Health Insurance Deduction
- S-Corporation Health Insurance Deduction
- Can My Business Pay for Individual Health Insurance?
Common QSEHRA Questions
Can a QSEHRA reimburse individual health insurance premiums?
Yes. HealthCare.gov says a QSEHRA can help employees pay household health care costs, including monthly premiums for qualifying health coverage. HealthCare.gov QSEHRA glossary
Can a QSEHRA reimburse Medicare premiums?
In many cases, yes, if the employee is eligible, has qualifying coverage, and the reimbursement is allowed under the written QSEHRA plan document.
Can I offer both a group health plan and a QSEHRA?
No. A QSEHRA is generally for eligible small employers that do not offer a group health plan. Employers that want to use individual insurance reimbursement in a different way may want to compare an ICHRA.
Do I need a written plan document?
Yes. IRS Notice 2017-67 provides guidance on QSEHRA requirements, tax treatment, and employee notice rules. IRS Notice 2017-67
Need Help Comparing the Options?
The best answer may be a QSEHRA, an ICHRA, a traditional small group health insurance plan, or another Section 105 reimbursement arrangement. The right choice depends on your employees, your budget, your tax situation, and whether employees qualify for individual-market subsidies.
Before setting up a QSEHRA, compare:
• QSEHRA reimbursement limits
• ICHRA flexibility
• Small group premiums
• Covered California subsidy impact
• Owner tax treatment
• Employee recruiting and retention goals
| Email Steve About QSEHRA | Start Small Group Quote / Application | Section 105 Overview |
Official References
- IRS Notice 2017-67 — QSEHRA Guidance
- IRS Revenue Procedure 2025-32 — 2026 QSEHRA Limits
- HealthCare.gov — HRAs for Small Employers
- HealthCare.gov — QSEHRA and Marketplace Coverage
- HealthCare.gov — QSEHRA Worksheet
This information is for general educational purposes for California small employers. QSEHRA plan documents, employee notices, owner eligibility, tax reporting, and reimbursement rules should be reviewed with a qualified tax adviser, benefits administrator, or attorney when appropriate.
The 21st Century Cures Act
President Barack Obama on Dec. 13 signed into law the 21st Century Cures Act, which will let small businesses use health reimbursement arrangements (HRAs) to fund employees who purchase individual health plans on the open market.
Learn More===>SHRM.org
The Cures act incorporates key elements of the proposed Small Business Healthcare Relief Act, creates a new type of HRA—the qualified small employer health reimbursement arrangement (QSEHRA). The legislation specifies that:
- The maximum reimbursement for health expenses that small employers can provide through employee QSEHRAs is $4,950 for single coverage and $10,000 for family coverage, to be adjusted annually for inflation.
- Small employers that choose to provide QSEHRAs must offer them to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.
- Generally, an employer must make the same QSEHRA contributions for all eligible employees. However, amounts may vary based on the price of an insurance policy in the relevant individual health insurance market, which in turn can be based on the age of the employee and eligible family members, or the number of family members covered.
- Learn More===SHRM.org
