How Does a QSEHRA Work With Obamacare Subsidies For Medical Insurance Costs?

How Does a QSEHRA Work With Obamacare Subsidies For Medical Insurance Costs?

How does qshera work with obamacare subsidies for medical insurance costs

QSEHRAs are reimbursement arrangements administered by employers and reimburse employees for eligible expenses.

Employees can use QSEHRA funds to pay for coverage through an Affordable Care Act exchange; however, their premium subsidies or tax credits at the exchange must be reduced by an amount equal to their QSEHRA allowance.


Obamacare, otherwise known as the Patient Protection and Affordable Care Act, has significantly changed the way Americans obtain health insurance. Subsidies based on income help reduce costs while Medicaid expansion benefits low-income families; additionally it prohibits insurance companies from denying coverage or increasing premiums for people with preexisting conditions.

QSEHRAs can be used by employers to reimburse employee premiums for individual major medical coverage; however, they do not qualify as minimum essential coverage (MEC). If an employee eligible for Affordable Care Act subsidies uses their QSEHRA to purchase individual major medical coverage they must enroll in an ACA marketplace plan or another source of MEC instead.

The Affordable Care Act also mandates that health insurers spend at least 80% of premium dollars on actual medical care and quality improvements rather than advertising, overhead or executive bonuses. It prohibits discrimination based on gender or age and allows people to keep their current plans when switching jobs.

Employer Contributions

A QSEHRA is similar to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), yet unlike these accounts it does not actually exist as such; rather it is a reimbursement arrangement through which employers reimburse employees for expenses related to individual coverage purchased on health insurance marketplaces or through other sources of coverage.

Reimbursements under these plans are tax-free for employees and do not incur payroll taxes like traditional group health plans do, though there may be annual limits on what a company can reimburse an employee for individual coverage costs or other expenses.

Additionally, if an employee’s income qualifies them for premium subsidies on an exchange, QSEHRA reimbursements could compromise their eligibility for those credits. There are ways around this, however. Some companies set up dedicated QSEHRA bank accounts for payments; others simply process reimbursements through payroll as they would with office equipment or travel expenses.


QSEHRAs are health reimbursement arrangements used by small businesses to reimburse employees for individual health coverage costs. Under the Affordable Care Act (ACA), these ICHRAs must be entirely funded by employers rather than being part of any group plan and they must only reimburse those employees who possess minimum essential coverage (MEC).

Employers must take great care in making sure their QSEHRAs comply with both federal and ACA regulations; otherwise they could incur steep penalties and fines.

Employers receiving a QSEHRA must report it on their exchange applications, and their premium subsidies will be reduced dollar for dollar by the amount of allowance received – this may significantly alter the affordability of insurance for them.


QSEHRAs enable small employers to provide their employees tax-free funds to purchase individual health insurance coverage on the Affordable Care Act exchanges. Similar to an HRA or HSA, employees can use QSEHRAs for out-of-pocket medical expenses and premium payments; however, certain rules must be observed when offering one.

Example: If an employee’s income is high enough to disqualify them for premium subsidies in an exchange, receiving QSEHRA benefits will reduce eligibility for such subsidies. Furthermore, if one of their family members receives such subsidies and their employer wishes them to remain eligible, any QSEHRA benefits they receive must also be reported directly to that exchange.

Employers need to understand how these plans operate so they can make informed decisions regarding their business operations. Care should also be taken when adopting a QSEHRA to review coverage, cost and network options before adopting one; additionally they should determine their willingness to pay for lost cost-sharing subsidies mandated by the Affordable Care Act (ACA).

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About the Author: Raymond Donovan