Introduction
As a small business owner, you want your team to feel valued. You want your business to be a place where good employees want to work — and more importantly, where they want to stay.
But let’s be honest: offering health insurance is expensive.
And that’s why so many small business owners skip it altogether.
The problem? When you don’t offer benefits like health coverage, you limit your ability to attract and keep the kind of employees who can actually help you grow.
The Real Problem
When you don’t offer health benefits, you’re not just saving money but sacrificing talent.
Top-tier employees expect more than just a paycheck. They want to know that their health matters. And if they don’t get that from you? They’ll go somewhere else that does.
Even if you manage to hire great people, they’re less likely to stick around long-term, which means you’re constantly training new folks and scrambling to deliver the kind of service your clients deserve.
It Gets Worse
You’re already doing the work of five people. You’re juggling sales, operations, client service, and bookkeeping — all while onboarding new hires and trying to grow.
Now add high turnover to that mix.
It’s exhausting. And it’s expensive.
Instead of skipping out on health coverage completely, I want you to consider something a little different: QSEHRA.
The Smarter Solution: QSEHRA
In this post, I’ll break down:
- • What QSEHRA is
- • How it works
- • What it covers
- • The pros and cons
- • Whether it’s a good fit for your business
Let’s get into it.
What Is QSEHRA?
QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) allows small businesses to reimburse employees for qualified medical expenses without providing a traditional group health plan.
That means your employees get help paying for health insurance and medical costs, without you having to commit to an expensive group policy.
It’s not a replacement for health insurance — your employees still need to get their own coverage. But it’s a flexible, cost-effective way to offer support without breaking your budget.
How QSEHRA Works
Here’s how it works:
- 1. Your employee pays for their own medical expenses (i.e. premiums, prescriptions, doctor visits).
- 2. They submit a claim with proof of the expense.
- 3. You reimburse them, tax-free (in most cases).
Boom. That’s it.
As of 2025, the max you can reimburse is $6,350/year for individuals and $12,800/year for families. It’s tax-deductible for you and tax-free for them, as long as they’re covered by a qualified health insurance plan.
A few quick eligibility notes:
- ☑️ Your employee must have Minimum Essential Coverage (MEC) under the Affordable Care Act.
- ☑️ You need to have at least one W-2 employee (sorry, 1099 contractors don’t count).
- ☑️ You cannot offer a group health plan at the same time.
- ☑️ You must have fewer than 50 full-time employees to offer this plan
- ☑️ S-corporation owners, spouses, and dependents who own more than 2% of the business can’t participate in a QSEHRA.
What Can QSEHRA Be Used For?
QSEHRA can reimburse employees for:
- ✅ Health insurance premiums
- ✅ Qualified medical expenses
- ✅ Premiums on a spouse’s employer-sponsored health plan*
*Just know: reimbursements for premiums paid by a spouse’s or parent’s plan may be taxable.
Pros and Cons of QSEHRA
✅ Pros
- • Tax advantages: Reimbursements are tax-free for employees and tax-deductible for you.
- • Cost control: You only pay when employees submit proof of an approved expense.
- • Customizable: You can choose whether to cover premiums, medical expenses, or both.
- • No rate hikes: You’re not stuck dealing with annual premium increases like with group plans.
- • Freedom of choice: Employees can choose their own plan, not just what you offer.
- • Remote-friendly: Perfect if your team works from home or in multiple states.
- • Stronger retention: Employees stick around when they feel supported — QSEHRA helps with that.
⚠️ Cons
- • One-size limit: You can’t give different allowance amounts to different employees (unless it’s based on family status).
- • No group health plan: You’re not eligible for QSEHRA if you already offer group health insurance.
- • Not for everyone: Some businesses, depending on their entity type, may not qualify.
- • Contribution cap: There’s a max on what you can reimburse each year.
Final Thoughts
QSEHRA can be a game-changer for small business owners who want to offer health benefits without the hefty price tag of group insurance.
QSEHRA is affordable, flexible, and can help you attract and keep the team you need to grow.
Just keep in mind: QSEHRA isn’t a replacement for health insurance.
Your employees must still carry their own coverage (or get it through a spouse or parent) to participate. And it does have its limits. If QSEHRA doesn’t work for your business, another type of HRA might.
So, if you’re tired of losing great talent or struggling to keep up on your own, this is your sign. Don’t skip benefits. Get smart about how you offer them.
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H2: Frequently Asked Questions (FAQ)
1. What does QSEHRA stand for?
QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. It’s a way for small businesses to help employees with medical costs without offering a traditional group plan.
2. Do I have to offer health insurance to use QSEHRA?
Nope. That’s the beauty of it. QSEHRA is specifically for businesses not offering group health insurance. You reimburse employees for their own qualified health expenses instead.
3. Can any small business offer a QSEHRA?
Not quite. To qualify:
- You must have fewer than 50 full-time employees
- You can’t offer a group health plan
- You must have at least one W-2 employee
Note: Owners of S-corporations (with more than 2% ownership) and their families can’t participate.
4. Is the reimbursement taxable?
Usually, no — it’s tax-free for employees and tax-deductible for you, as long as the employee has qualifying health coverage (MEC under the ACA).
5. Can I offer different amounts to different employees?
Not unless it’s based on family status (single vs. family coverage). Everyone else gets the same allowance.
6. Can part-time employees participate?
Yes, if they’re W-2 employees and you choose to include them in your plan. You can set eligibility rules, like requiring a certain number of hours worked per week.
7. What happens if my employee doesn’t have health insurance?
They can’t get tax-free reimbursements through QSEHRA. They must have Minimum Essential Coverage (MEC) to qualify.
8. Can 1099 contractors be included in QSEHRA?
Nope. QSEHRA is only for W-2 employees. Independent contractors are not eligible.
9. What if QSEHRA doesn’t work for me?
That’s okay. It’s not one-size-fits-all. Other options like ICHRA (Individual Coverage HRA) might be a better fit depending on your business size, goals, and team structure.
