Source: KFF 2025 Employer Health Benefits Survey; IRS Rev. Proc. 2025-32
Feature-by-Feature Comparison
| Feature | QSEHRA | Group Health Insurance |
|---|---|---|
| Annual cost to employer (2026) | Up to $6,450/employee (single) or $13,100/employee (family) — you set the allowance within IRS limits | $9,325/employee (single) avg; $26,993/employee (family) avg; median 11% premium increase in 2026 (KFF/Peterson Health System Tracker) |
| Admin burden | Low — reimburse receipts monthly | High — annual renewal, plan selection, enrollment management, participation minimums |
| Employee plan choice | Full choice — any ACA-qualified individual or family plan | Limited — employer-selected carrier and metal tier |
| Tax treatment | Employer: fully tax-deductible, zero payroll tax on reimbursements. Employee: reimbursement is income-tax-free (with MEC). | Employer: tax-deductible premium contributions. Employee: premiums paid by employer are taxable compensation (usually paid pre-tax by employee via Section 125) |
| Eligibility | <50 FTEs; cannot offer any group health plan simultaneously | Available for employers of any size; participation requirements apply (typically 70% of employees must enroll) |
| Portability | Employee keeps their plan and QSEHRA reimbursement if they leave | Coverage typically ends with employment; COBRA available at high cost |
| ACA employer mandate | Exempt (no group plan = no mandate trigger) | Applicable at ≥50 FTEs; triggers affordability assessment at ≥50 FTEs |
Sources: KFF 2025 Employer Health Benefits Survey (Oct. 2025); Peterson-KFF Health System Tracker — "How Much and Why Premiums Are Going Up for Small Businesses in 2026" (accessed June 2026); IRS Revenue Procedure 2025-32; U.S. Chamber of Commerce CO — "Small Business Health Insurance Options" (2026).
When QSEHRA Makes Sense
- Your team is 1–49 employees and you don't currently offer a group plan
- You want predictable, fixed costs — you set the allowance, it doesn't change mid-year
- Your employees already have individual coverage (spouse plan, parent plan, marketplace)
- You want to eliminate annual renewal negotiations and broker commissions
- You'd rather give employees $400–$600/month than $700–$2,000/month for group coverage
When Group Health Insurance May Still Be the Better Choice
- You want to offer rich, low-deductible coverage with a wide provider network
- Your employees largely lack individual coverage and need employer-sponsored options
- You're in a state where ACA Marketplace individual plan options are thin
- You have 50+ FTEs and want to satisfy the ACA employer mandate efficiently
The right choice depends on your team's specific situation. ClaimSage's free assessment maps out which programs you qualify for and estimates your total loaded cost — no broker commission, no sales call.
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Frequently Asked Questions
How long does it take to set up a QSEHRA?
Most small employers can set up a QSEHRA in 2–4 weeks. The main requirements are: adopting a written QSEHRA plan document, notifying employees of the benefit, and setting up a reimbursement process (monthly receipt submissions). No IRS approval or filing is required — the arrangement is employer-designed, provided it stays within IRS annual contribution limits.
Is QSEHRA compliant with the ACA?
Yes. QSEHRA is specifically codified under the 21st Century Cures Act and is an ACA-compliant health benefit arrangement. Employees receiving QSEHRA reimbursements must maintain Minimum Essential Coverage (MEC) — a qualified individual health insurance plan or other qualifying coverage — in order for the reimbursement to be tax-free. The employer is responsible for confirming MEC is in place before approving reimbursements.
Do I need a benefits broker to offer QSEHRA?
No. One of QSEHRA's key advantages is that it doesn't require a benefits broker. Since employees choose their own individual plans (not a group plan selected by the employer), there's no plan procurement, no carrier negotiation, and no annual enrollment management. You set the allowance, employees handle their own coverage. Some employers use a certified public accountant or benefits consultant to draft the plan document, but this is a one-time cost, not an annual commission.
How do QSEHRA reimbursements actually work in practice?
Monthly, employees submit proof of their insurance premium payment (an invoice, an Explanation of Benefits, or a premium statement from their insurance carrier). The employer reviews it, confirms the employee has MEC, and reimburses up to the allowed amount. The reimbursement can cover insurance premiums only, or can be broader to include co-pays, deductibles, prescription drugs, and other qualifying medical expenses. ClaimSage's QSEHRA calculator can help model your expected annual cost based on headcount and allowance level.
What happens to my employees' ACA subsidies when I offer QSEHRA?
This is one of the most important QSEHRA considerations. When an employer offers a QSEHRA, employees become ineligible for ACA Marketplace premium tax credits for any month they receive QSEHRA reimbursements. For employees who are currently receiving significant ACA subsidies (especially those with income between 100%–400% of the federal poverty level), the loss of subsidy value may offset or even exceed the QSEHRA benefit. Employers should communicate clearly with employees about this trade-off before implementing a QSEHRA, particularly for lower-wage workers.
Can I offer QSEHRA if I'm already offering group health insurance?
No. A QSEHRA is only available to small employers who do NOT offer any group health plan. If you currently have a group plan — even a bare-bones one — you cannot offer a QSEHRA simultaneously. If you're considering switching from group to QSEHRA, you'll need to terminate the group plan and then establish the QSEHRA. ICHRA (Individual Coverage HRA) is the alternative for employers who want to offer an HRA-style benefit but also maintain a group plan for some employees (or who have 50+ FTEs).
Are QSEHRA reimbursements subject to payroll taxes?
No. QSEHRA reimbursements are not subject to federal income tax withholding, Social Security (FICA), or Medicare taxes, as long as the employee has Minimum Essential Coverage. This is one of the key advantages over simply providing a raise or bonus to employees — the full amount of the reimbursement goes to the employee tax-free. Note: this tax treatment applies at the federal level. State income tax rules vary; consult your CPA for your specific state.
What records do I need to keep for QSEHRA compliance?
You should maintain: (1) a written QSEHRA plan document describing the benefit terms, (2) proof that you notified all eligible employees in writing before the plan year began, (3) receipts and MEC documentation submitted by employees each month, and (4) records of all reimbursements paid. These should be kept for at least 3 years (IRS recommends 6 years for tax-related documentation). The employer is not required to file any special IRS forms for QSEHRA — it's treated as a business expense deduction on the company's tax return.
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