How a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Can Benefit Your Small Organization

One of the greatest challenges facing small organizations today is providing meaningful employee benefits while managing the increasing cost of healthcare. Whether you lead a Christian business, church, ministry, nonprofit, or another small organization, you understand the importance of caring for your employees. You also understand that financial resources are not unlimited.

Over the years, I’ve met with many organizational leaders who genuinely want to provide healthcare benefits to their employees but simply cannot afford the cost of a traditional group health insurance plan. Some have only a handful of employees, while others have larger teams but limited financial resources. Regardless of their circumstances, the desire is often the same: take care of the people who help make the organization successful.

At IHN HR, we believe employees are among an organization’s greatest resources. When organizations invest in their people, they demonstrate that employees are valued, respected, and appreciated. Providing meaningful benefits is one way to accomplish this, but it does not necessarily require purchasing an expensive traditional group health insurance plan.

One option worth exploring is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

What Is a QSEHRA?

A Qualified Small Employer Health Reimbursement Arrangement, commonly referred to as a QSEHRA, is an employer-funded benefit arrangement that allows eligible small organizations to reimburse employees for qualifying medical expenses, including individual health insurance premiums.

Unlike traditional group health insurance, a QSEHRA allows employees to select healthcare coverage that best meets their individual or family needs. The employer establishes an annual reimbursement allowance, subject to federal limits, and employees submit eligible expenses for reimbursement.

For many smaller organizations, this approach can provide greater flexibility while helping employers manage their healthcare expenditures.

The arrangement was established under the 21st Century Cures Act and remains available to qualifying small employers.

Which Organizations Qualify?

Generally, a QSEHRA is available to employers that are not applicable large employers under the Affordable Care Act (ACA). This typically means organizations with fewer than 50 full-time employees, including full-time equivalent employees, based on the preceding calendar year.

The employer also cannot offer a traditional group health plan to its employees while maintaining a QSEHRA.

This makes the arrangement particularly attractive to smaller Christian businesses, churches, ministries, and nonprofit organizations that may not have the financial resources to provide traditional group medical insurance.

Although the arrangement generally must be offered on the same terms to eligible employees, federal regulations permit certain employee exclusions and adjustments based on factors such as age and family size.

Organizations should carefully review eligibility requirements before implementing a QSEHRA.

How Much Can Employers Contribute in 2026?

One of the advantages of a QSEHRA is that employers can establish reimbursement allowances that fit within their financial capabilities, provided they follow federal requirements.

For 2026, the IRS has established the following maximum annual reimbursement amounts:

• $6,450 for individual coverage
• $13,100 for family coverage

These are maximum permitted reimbursement amounts, not mandatory employer contributions. An organization may establish a lower allowance based on its financial resources.

For example, a small Christian organization might determine that it can afford to reimburse eligible employees up to $300 per month toward qualifying healthcare expenses. Another organization may have the financial ability to provide a higher allowance.

The important consideration is establishing a benefit that is both meaningful to employees and financially sustainable for the organization.

As with any employee benefit, the program should be carefully designed and administered according to applicable regulations.

Five Ways a QSEHRA Can Benefit Your Organization

1. Greater Control Over Healthcare Costs

One of the most significant challenges associated with traditional group health insurance is the uncertainty surrounding annual premium increases. Employers may establish a benefits budget only to discover that their insurance premiums have increased significantly at renewal.

A QSEHRA allows employers to establish defined reimbursement allowances, making healthcare expenditures more predictable.

For smaller organizations operating with limited budgets, this predictability can make an enormous difference.

2. Greater Flexibility for Employees

Employees have different healthcare needs. A young employee beginning a career may have very different coverage requirements than an employee supporting a family.

Rather than selecting one group insurance plan for everyone, a QSEHRA allows employees to choose individual health insurance coverage that meets their circumstances.

This flexibility can be particularly helpful for organizations with employees living in different geographic areas or having different healthcare priorities.

The employer provides financial assistance while employees maintain greater control over their healthcare decisions.

3. Potential Tax Advantages

When properly established and administered, QSEHRA reimbursements for qualifying medical expenses can generally be excluded from an employee’s taxable income, provided the employee meets applicable minimum essential coverage requirements.

Employers may also receive favorable tax treatment for qualifying reimbursements, depending on the organization’s tax status.

It is important to distinguish a QSEHRA from simply providing employees with additional taxable compensation to purchase health insurance. A taxable healthcare stipend is generally treated as wages, while a compliant QSEHRA operates under specific federal tax rules.

Employees who qualify for premium tax credits through the Health Insurance Marketplace must also understand how their QSEHRA benefit affects those credits. Depending on affordability, the QSEHRA may reduce or eliminate an employee’s premium tax credit.

These considerations make proper program design and employee education especially important.

4. A Meaningful Benefit for Recruitment and Retention

In today’s competitive employment environment, small organizations often find themselves competing against larger employers with significantly greater financial resources.

Although smaller organizations may not be able to match every benefit offered by larger employers, they can still demonstrate a genuine commitment to employee well-being.

A QSEHRA provides an opportunity to offer meaningful healthcare assistance without committing to the cost structure of a traditional group health insurance program.

When employees recognize that their employer is making an effort to support their healthcare needs, it can contribute to employee satisfaction and strengthen the organization’s overall employment value proposition.

Benefits alone do not create a high-performing organization, but they are an important component of a thoughtful and effective human resources strategy.

5. Supporting a Culture of Caring for Employees

For Christian organizations, caring for employees should extend beyond compensation and workplace policies.

Our responsibility as leaders includes recognizing the needs of those who serve alongside us and considering how organizational decisions affect their lives and families.

Philippians 2:4 reminds us, “Look not every man on his own things, but every man also on the things of others.”

This principle applies to how we lead our organizations. Providing healthcare assistance, when financially possible, is one practical way to demonstrate concern for the people entrusted to our leadership.

Not every organization can provide the same level of benefits. However, every organization can evaluate its resources and determine how best to support its employees.

What About Healthcare Sharing Ministries?

Many Christian employers and employees are familiar with healthcare sharing ministries. These programs may appeal to individuals seeking healthcare arrangements that reflect their religious beliefs.

However, healthcare sharing ministries are not the same as traditional health insurance, and participation in a sharing ministry does not automatically satisfy the minimum essential coverage requirements associated with tax-free QSEHRA reimbursements.

Organizations considering a QSEHRA alongside healthcare sharing ministry participation should obtain qualified tax and benefits guidance before establishing reimbursement policies.

It is important that employees understand the differences between health insurance, healthcare sharing arrangements, and employer reimbursement programs before making decisions about their coverage.

Important Compliance Considerations

Although a QSEHRA may offer advantages, it is not simply a matter of establishing a monthly allowance and reimbursing employees.

Employers must comply with federal requirements governing eligibility, written plan documents, employee notices, reimbursement substantiation, annual contribution limits, and applicable tax reporting.

In general, employers must provide eligible employees with written notice at least 90 days before the beginning of the plan year, with special timing rules for newly eligible employees and newly established arrangements.

Employers must also report the employee’s permitted QSEHRA benefit on Form W-2, using the applicable reporting requirements.

Reimbursements must be supported by appropriate documentation, and employees must understand the importance of maintaining qualifying health coverage.

For these reasons, organizations should work with qualified benefits professionals and tax advisors when designing and administering a QSEHRA.

Is a QSEHRA Right for Your Organization?

There is no single employee benefits solution that works for every organization.

Some organizations may benefit from traditional group health insurance. Others may find that an Individual Coverage Health Reimbursement Arrangement (ICHRA), a QSEHRA, or another properly structured benefits strategy better meets their needs.

The decision should begin with a thoughtful evaluation of your organization’s financial resources, employee demographics, recruitment challenges, and long-term objectives.

At IHN HR, we encourage leaders to view employee benefits as part of their overall organizational strategy rather than simply another operating expense.

A well-designed benefits program can support employee retention, strengthen organizational culture, and demonstrate a commitment to the people who make your mission possible.

Remember, building a high-performing organization begins with making thoughtful decisions about your people.

If your organization is struggling to provide affordable employee benefits, now may be an excellent time to explore the options available to you.

IHN HR helps Christian businesses, churches, ministries, nonprofits, and educational institutions strengthen their HR foundations and develop people-centered strategies that support long-term organizational success.

 

Editor’s Note — Updated October 20, 2026: This article was originally published on November 14, 2024, and has been updated to reflect 2026 IRS QSEHRA reimbursement limits, current federal eligibility requirements, employee tax considerations, and employer compliance obligations. The information is provided for educational purposes and should not be considered legal, tax, or insurance advice. Organizations should consult qualified professionals before implementing an employee benefits arrangement.

IHN HR helps organizations build high-performance human resource programs. E-mail us here.