QUESTION: Can an employer with under 50 employees offer a stipend for employees to use to purchase their own individual health insurance policies?
ANSWER: Yes, in the form of a specifically designed arrangement know as a qualified small employer health reimbursement arrangement (QSEHRA). Created in December 2016 as part of the 21st Century Cures Act, QSEHRA allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance, tax-free.
An eligible employer:
- Is not an applicable large employer
- Does not offer a group health plan to its employees.
A QSEHRA is an arrangement that meets the following criteria:
- Is funded solely by an eligible employer, and no salary reduction contributions may be made
- Is provided on the same terms to all eligible employees of the employer
- Provides, after the employee provides proof of coverage, for the payment or reimbursement of medical expenses incurred by the employee or the employee’s family members
- In 2019, the maximum dollar amount for employee-only arrangements is $5,150, and the maximum dollar amount for family coverage arrangements is $10,450.
IRS Revenue Procedure 2018-57, 2019 Inflation Adjustments (See section 62 on pages 29-30) and IRS Notice 2017-67, Qualified Small Employer Health Reimbursement Arrangements