Health insurance costs are climbing faster than they have in years. The average annual premium for employer-sponsored family coverage reached about $27,000 in 2025, an increase of roughly 6% from the prior year. Looking ahead to 2026, forecasts show employer healthcare costs could rise close to 9%, driven by higher hospital costs, more service utilization, and the growing use of expensive prescription drugs, including GLP-1s.
For dental practice owners, these rising costs are putting real pressure on profitability. If your practice still offers a traditional group health plan, you’ve probably felt the impact. One alternative worth exploring is the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) — a flexible, cost-controlled way to help your team with health coverage.
What Is a QSEHRA?
A QSEHRA is designed for small employers with fewer than 50 full-time equivalent employees who do not offer a group health plan. Instead of paying for a group policy, you set a monthly or annual allowance to reimburse employees for individual health insurance premiums and other qualifying medical expenses.
Here’s how it works: Employees buy their own coverage on the individual market and provide proof of coverage and expenses. You reimburse up to the approved amount, which is tax-free to employees (as long as they have qualifying health coverage) and deductible for your practice. For 2026, the IRS limits are $6,450 per year for self-only coverage and $13,100 for family coverage.
Why It Makes Sense for Dental Practices
The biggest advantage is predictable costs. Instead of dealing with unpredictable group premium increases every renewal, you choose a fixed reimbursement amount that fits your budget. Your team gets flexibility to select the plan that works best for them and their families, and you gain tax efficiency — reimbursements are tax-free for employees and fully deductible for the practice when structured properly.
From an administrative standpoint, a QSEHRA is simpler to manage than a traditional group plan. No carrier negotiations, no annual renewals with surprise rate hikes, and no trying to find a one-size-fits-all plan for a diverse team.
Important Rules to Know
There are some key compliance requirements. You can’t offer a QSEHRA to employees who are also covered under a group health plan. Employees must have Minimum Essential Coverage for the reimbursement to be tax-free. You need to stay within the annual IRS reimbursement caps and review them each year as they adjust for inflation.
If employees receive Marketplace subsidies, a QSEHRA could affect those subsidies. The arrangement is considered affordable if it doesn’t exceed 9.96% of the employee’s household income for 2026. You’ll also need to provide written notice to employees at least 90 days before the beginning of the year and include annual QSEHRA amounts on Form W-2.
Is It Right for Your Practice?
A QSEHRA can be a great fit if you have fewer than 50 full-time equivalent employees, you’re seeing group health premiums rise faster than revenue, or you want to offer a competitive benefit without unpredictable renewals. In many cases, the total employer spend under a QSEHRA can be significantly lower than a group plan while still helping staff afford quality coverage.
As healthcare costs continue to rise, dental practice owners need to think strategically about how to manage benefits. A QSEHRA offers flexibility, cost control, and tax advantages — all while helping your team access the coverage they need. If you’re exploring alternatives to your current group plan, we can help you analyze your options and determine whether a QSEHRA makes sense for your practice.Ready to explore your options? Contact Dental CPA today. We’ll help you analyze whether a QSEHRA makes sense for your practice and guide you through the implementation process.