Question 1

What is a QSEHRA and how does it work for Michigan small businesses?

Accepted Answer

A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is a tax-advantaged benefit that allows Michigan small employers with fewer than 50 full-time equivalent (FTE) employees to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. Unlike traditional group health insurance where the employer selects and purchases a plan for all employees, QSEHRA gives employees the freedom to choose their own individual health insurance plans that best fit their needs. Michigan employers establish a monthly or annual reimbursement allowance, and employees purchase individual coverage through the Michigan Health Insurance Marketplace (Healthcare.gov) or directly from insurers. After incurring eligible expenses, employees submit proof of payment and coverage to the employer, who then reimburses them up to the established limit. For 2025, the maximum reimbursement limits are $6,150 for single coverage and $12,450 for family coverage. For 2026, these limits increase to $6,300 for single coverage and $12,750 for family coverage. Michigan employers can set any amount up to these maximums. QSEHRA reimbursements are tax-free to employees and tax-deductible for employers. To offer QSEHRA, the Michigan employer must not offer any group health plan to any employee. All full-time employees must be offered the QSEHRA on the same terms, though part-time employees can be excluded. CFH Insurance Consultants helps Michigan small businesses design, implement, and administer QSEHRA plans that comply with federal regulations while meeting employee needs.

Question 2

Which Michigan employers are eligible to offer QSEHRA?

Accepted Answer

QSEHRA eligibility is specifically limited to small employers. A Michigan employer qualifies to offer QSEHRA if they have fewer than 50 full-time equivalent (FTE) employees and do not offer a group health plan to any employees. The 50-FTE threshold is calculated using the Affordable Care Act (ACA) method: count all full-time employees (those working 30 or more hours per week) plus full-time equivalents based on part-time hours. For example, if a Michigan employer has 40 full-time employees and 20 part-time employees each working 15 hours per week, the part-time hours equal 10 FTEs (20 employees × 15 hours ÷ 30 hours = 10 FTEs), bringing the total to 50 FTEs. This employer would NOT be eligible for QSEHRA. Michigan employers with exactly 50 FTEs are not eligible. The prohibition on offering any group health plan is absolute. If a Michigan employer offers a group health plan to even one employee, they cannot offer QSEHRA to any employee. This includes traditional group medical plans, dental plans, vision plans, or any other employer-sponsored health coverage. Seasonal workers can be excluded from the FTE count if they work fewer than 120 days per year. Michigan employers approaching 50 FTEs should monitor their workforce carefully, as exceeding this threshold requires discontinuing QSEHRA and transitioning to either ICHRA or a traditional group health plan. CFH Insurance Consultants helps Michigan employers calculate FTE counts accurately, assess QSEHRA eligibility, and plan for transitions if workforce growth is anticipated.

Question 3

What are the 2025 and 2026 QSEHRA contribution limits for Michigan employers?

Accepted Answer

The IRS sets annual QSEHRA reimbursement limits, which are adjusted for inflation each year. For 2025, the maximum QSEHRA reimbursement amounts are $6,150 for single (self-only) coverage and $12,450 for family coverage. For 2026, these limits increased to $6,300 for single coverage and $12,750 for family coverage. Michigan employers can set any reimbursement amount up to these maximums. The employer does not have to offer the maximum; they can choose a lower amount that fits their budget. However, all full-time employees must be offered the same reimbursement amount on the same terms. The employer cannot vary amounts based on employee tenure, salary, or position. The reimbursement can be provided as a monthly allowance (e.g., $500/month for single coverage) or as an annual lump sum. Unused amounts can be rolled over to the next month or year, depending on the plan design, but the total annual reimbursement cannot exceed the IRS limit. For family coverage, the $12,750 limit (2026) applies regardless of family size. A family of three and a family of five receive the same maximum reimbursement. Michigan employers should consider local premium costs when setting QSEHRA amounts. In some Michigan rating areas, individual premiums may exceed the QSEHRA limit, meaning employees would need to pay the difference out of pocket. CFH Insurance Consultants helps Michigan employers analyze local premium costs and set QSEHRA reimbursement levels that provide meaningful benefits while staying within budget and regulatory limits.

Question 4

What health expenses can Michigan employees be reimbursed for through QSEHRA?

Accepted Answer

QSEHRA can reimburse employees for a broad range of health-related expenses, provided the employee has minimum essential coverage (MEC). Eligible expenses include: individual health insurance premiums purchased through the Michigan Health Insurance Marketplace or directly from insurers; Medicare Part A, B, C (Medicare Advantage), and D premiums for eligible employees; dental insurance premiums; vision insurance premiums; qualified long-term care insurance premiums; and out-of-pocket medical expenses that would qualify for the medical expense deduction under IRS rules. Out-of-pocket expenses include deductibles, copayments, coinsurance, prescription medications, medical devices, and certain over-the-counter items. However, QSEHRA cannot reimburse: expenses for which the employee has already been reimbursed by another source; expenses incurred before the QSEHRA effective date; expenses incurred after the QSEHRA termination date; or premiums for short-term limited duration insurance or health care sharing ministry memberships (these do not constitute MEC). Michigan employees must maintain proof of MEC to receive tax-free reimbursements. If an employee does not have MEC, reimbursements are taxable income to the employee. Employers should require employees to submit documentation of both the expense and their MEC status. CFH Insurance Consultants provides Michigan employers with QSEHRA plan documents that clearly define eligible expenses, documentation requirements, and reimbursement procedures. CFH also administers the reimbursement process, reviewing employee submissions and ensuring compliance with IRS rules.

Question 5

How does QSEHRA affect employee premium tax credits in Michigan?

Accepted Answer

QSEHRA interacts with premium tax credits in a specific way that Michigan employees and employers need to understand. When an employee is offered QSEHRA, they must report this benefit to the Health Insurance Marketplace when applying for coverage or updating their application. The Marketplace then determines whether the QSEHRA is affordable. For QSEHRA, affordability is based on whether the QSEHRA reimbursement amount is large enough to make the second-lowest-cost silver plan in the employee's Michigan rating area affordable. If the QSEHRA is determined to be affordable, the employee is ineligible for any premium tax credit. If the QSEHRA is not affordable, the employee receives a reduced premium tax credit equal to their full calculated credit minus the QSEHRA reimbursement amount. Importantly, QSEHRA employees cannot opt out of the QSEHRA to receive their full premium tax credit. This is a key difference from ICHRA. For example, if a Michigan employee is eligible for a $400 monthly premium tax credit and receives a $300 monthly QSEHRA reimbursement, their net tax credit would be $100 ($400 - $300 = $100). If the QSEHRA is affordable, the employee receives $0 in tax credits but still receives the $300 QSEHRA reimbursement. Michigan employees who receive tax credits they are not eligible for may have to repay them when filing their federal tax return. CFH Insurance Consultants educates Michigan employees about QSEHRA and tax credit interactions, helps them model different scenarios, and ensures they make informed enrollment decisions. CFH also ensures that all required tax credit disclosures are included in employer notices.

Question 6

What are the notice requirements for Michigan employers offering QSEHRA?

Accepted Answer

Michigan employers offering QSEHRA must provide specific written notices to employees. The notice must be provided at least 90 days before the beginning of each plan year. For new employees, the notice must be provided within 90 days of their hire date. If an employer is newly offering QSEHRA, the initial notice must be provided by the QSEHRA effective date. The QSEHRA notice must include: the amount of the QSEHRA benefit (the maximum reimbursement the employee can receive); a statement that the employee must report the QSEHRA to the Health Insurance Marketplace when applying for premium tax credits; a statement that if the employee does not have minimum essential coverage (MEC), reimbursements may be taxable; and the effective date of the QSEHRA. Failure to provide the required notice results in a penalty of $50 per employee per missed notice, up to $2,500 per calendar year. Michigan employers should maintain records of notice delivery, including dates and methods of delivery. Electronic delivery is acceptable if the employee has access to email and the employer can demonstrate delivery. CFH Insurance Consultants prepares QSEHRA notices for Michigan employers, ensuring all required content is included and notices are delivered on time. CFH also maintains delivery records to protect employers in case of IRS inquiry. In addition to the annual notice, employers should provide a Summary Plan Description (SPD) that explains the QSEHRA in detail, including eligibility, reimbursement procedures, eligible expenses, and employee rights.

Question 7

Can Michigan part-time employees participate in QSEHRA?

Accepted Answer

Under federal QSEHRA rules, Michigan employers can choose whether to include part-time employees in the QSEHRA. The employer is not required to offer QSEHRA to part-time employees, but if they choose to do so, the part-time employees must receive the same benefit on the same terms as full-time employees. This means the employer cannot offer a lower reimbursement amount or different eligible expenses to part-time employees. The decision to include or exclude part-time employees must be made at the plan level and applied consistently. The employer cannot pick and choose which part-time employees to include. For QSEHRA purposes, full-time is defined as working 30 or more hours per week. Employees working fewer than 30 hours per week are considered part-time. Michigan employers should consider their workforce composition when deciding whether to include part-time employees. Including part-time employees increases the employer's total QSEHRA cost but may improve employee satisfaction and retention. Excluding part-time employees reduces costs but may create perceptions of inequity. Some Michigan employers choose to include part-time employees who work a minimum number of hours (e.g., 20 hours per week) while excluding those who work fewer hours. This is permissible as long as the standard is applied consistently and does not discriminate based on protected characteristics. CFH Insurance Consultants advises Michigan employers on part-time employee inclusion decisions, modeling the cost impact and helping employers communicate their policy clearly to all employees.

Question 8

How do Michigan employees enroll in individual health insurance for QSEHRA?

Accepted Answer

Michigan employees participating in QSEHRA must enroll in individual health insurance that qualifies as minimum essential coverage (MEC). The primary enrollment pathway is the Michigan Health Insurance Marketplace (Healthcare.gov). Employees can enroll during the annual Open Enrollment Period (typically November 1 through January 15) or during a Special Enrollment Period if they experience a qualifying life event such as losing other coverage, getting married, having a baby, or moving. When applying on the Marketplace, employees must report their QSEHRA benefit. The Marketplace will then adjust their premium tax credit eligibility accordingly. Michigan employees can choose from Bronze, Silver, Gold, or Platinum plans offered by insurers like Blue Cross Blue Shield of Michigan, Priority Health, HAP, and others. The choice of metal tier affects premiums, deductibles, and out-of-pocket costs. Employees should consider their health needs, budget, and preferred providers when selecting a plan. In addition to Marketplace plans, employees can purchase individual plans directly from insurance companies, though these off-Marketplace plans do not qualify for premium tax credits. Some employees may already have qualifying coverage through a spouse's employer plan, Medicare, or another source. These employees can still participate in QSEHRA for out-of-pocket medical expenses, provided their coverage is MEC. CFH Insurance Consultants provides personalized enrollment assistance to Michigan employees, helping them compare plans, understand networks, estimate costs, and complete Marketplace applications. CFH ensures employees select plans that maximize their QSEHRA benefit while meeting their healthcare needs.

Question 9

What are the tax benefits of QSEHRA for Michigan employers and employees?

Accepted Answer

QSEHRA provides significant tax advantages for both Michigan employers and employees. For employers, QSEHRA reimbursements are tax-deductible as a business expense, similar to group health insurance premiums. This reduces the employer's taxable income. Unlike group health insurance, QSEHRA does not require the employer to pay FICA payroll taxes on reimbursements, resulting in additional savings. For employees, QSEHRA reimbursements are completely tax-free when used for eligible expenses while the employee has minimum essential coverage (MEC). The reimbursements are not subject to federal income tax, state income tax, or FICA taxes. This means a $500 monthly QSEHRA reimbursement provides the full $500 in value to the employee, unlike a $500 salary increase which would be reduced by taxes. For example, if an employee is in the 22% federal tax bracket and pays 6.2% Social Security tax and 1.45% Medicare tax, a $500 salary increase would net only about $352 after taxes. The same $500 as a QSEHRA reimbursement nets the full $500. This tax efficiency makes QSEHRA a powerful benefit for Michigan small businesses competing for talent against larger employers with traditional group plans. Michigan employers should note that if an employee does not have MEC, reimbursements are taxable income to the employee. The employer should verify MEC status before processing reimbursements. CFH Insurance Consultants helps Michigan employers understand the tax implications of QSEHRA, coordinates with their tax advisors, and ensures proper reporting on W-2 forms. QSEHRA reimbursements are reported in Box 12 of the employee's W-2 with code FF.

Question 10

How does CFH Insurance Consultants administer QSEHRA for Michigan small businesses?

Accepted Answer

CFH Insurance Consultants provides end-to-end QSEHRA administration services for Michigan small businesses, handling every aspect of plan design, implementation, and ongoing management. CFH's QSEHRA services include: plan design consultation, where CFH helps the employer determine the optimal reimbursement amount based on budget, workforce needs, and local Michigan premium costs; plan document preparation, where CFH creates a compliant written plan document that meets all federal requirements; employee notice preparation and delivery, where CFH prepares the required 90-day notices and ensures timely delivery to all eligible employees; employee education, where CFH conducts enrollment meetings, provides written materials, and offers one-on-one consultations to help employees understand QSEHRA and select individual insurance plans; reimbursement processing, where employees submit expense documentation through CFH's secure portal, and CFH reviews, approves, and processes reimbursements according to the plan terms; compliance monitoring, where CFH tracks regulatory changes, updates plan documents as needed, and ensures ongoing compliance with IRS rules; W-2 reporting, where CFH provides the employer with the necessary information to report QSEHRA benefits in Box 12 with code FF; and annual renewal and review, where CFH evaluates the plan's performance, recommends adjustments to reimbursement amounts, and prepares renewal notices. CFH's administration services reduce the employer's administrative burden to nearly zero while ensuring full compliance. Michigan small businesses can focus on their core operations while CFH manages the complexities of QSEHRA. CFH serves employers throughout Michigan, including Detroit, Grand Rapids, Lansing, Ann Arbor, and all surrounding areas. Contact CFH Insurance Consultants for a free QSEHRA consultation and administration quote.

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Frequently Asked Questions (FAQ) About QSEHRA for Michigan Small Businesses

1. Can a Michigan small business offer both a QSEHRA and traditional group health insurance simultaneously?

2. How do employers report QSEHRA contributions on IRS forms, such as the W-2?

3. What eligibility criteria affect employee qualification for QSEHRA benefits?

4. How do QSEHRA reimbursements influence employees’ eligibility for premium tax credits or subsidies?

5. What common mistakes should small businesses avoid when implementing a QSEHRA plan?

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