A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is:

Why A is correct

A QSEHRA lets an eligible small employer that does not offer a group health plan reimburse employees for qualified medical expenses, including individual market premiums, with the reimbursements excluded from the employee's gross income. Only the employer may fund it, and it must be offered on the same terms to all eligible employees, with annual contribution limits set by law. The QSEHRA and the ICHRA, the individual coverage HRA, are the two modern employer-funded reimbursement arrangements tested alongside the traditional HRA. The key distinguishing feature is the small employer that wants to help with medical costs without sponsoring a full group medical plan.

Why the other options are wrong

• B) Employee pre-tax funding with use-it-or-lose-it forfeiture describes a healthcare FSA. A QSEHRA is funded entirely by the employer, and it is not a salary-reduction account with a year-end forfeiture rule.
• C) A QSEHRA is not insurance at all; it is an employer reimbursement arrangement. It is therefore not sold on an exchange as a qualified health plan and does not appear in a plan comparison.
• D) A QSEHRA covers active employees' medical expenses and individual health plan premiums. It is not a Medicare supplement product and is not designed for retirees.

Memory hook

QSEHRA = small employer, no group plan, but still reimburses medical bills tax-free.

Why A is correct

A QSEHRA (qualified small employer HRA) lets an eligible small employer that does not offer group health coverage set aside funds to reimburse employees, tax-free, for the cost of individual market premiums and other qualified medical expenses. It is a consumer-directed arrangement under the tax code — distinct from a group plan and distinct from an HSA, which is individually owned and employee- or employer-funded. Reimbursements are excluded from the employee's gross income within statutory limits, and the arrangement must be offered on the same terms to all eligible employees. It is one of the small-employer options the exam contrasts with QHP and group coverage.

Why the other options are wrong

• B) A QSEHRA is not a group health plan sold through an exchange; it is an employer reimbursement vehicle for employees' individual policies, so this conflates two different coverage mechanisms.
• C) The QSEHRA is employer-funded and employer-managed, unlike an HSA, which is an employee-owned savings account, so this answer attributes the wrong ownership and funding structure.
• D) No federal grant pays small employers' premiums; the QSEHRA is funded entirely by the employer, so the grant description is a fiction.

Memory hook

QSEHRA = the small employer's reimbursement wallet for workers' individual premiums — tax-free, no group plan required.