Can I use an HRA to pay insurance premiums? Can employers reimburse employees for insurance premiums and medical expenses? You absolutely can! There are two different kinds of health reimbursement arrangements that are relatively new to the market that are prompting employers to start reimbursing employees for health insurance premiums.
How employers can use an HRA to pay for insurance premiums
There are two types of HRAs that allow employers to pay for health insurance premiums. The QSEHRA is designed for employers with less than 50 employees to reimburse for premiums and medical expenses if the plan allows. The ICHRA is for companies of any size. There are no limits to how much an employer can offer for reimbursement. This is a big difference with QSEHRA which has rather restrictive limits. Let’s look a bit more closely at both types and how they pay for insurance premiums.
Using ICHRA to pay for insurance premiums
ICHRA is one of the tools that allows you to use an HRA to pay insurance premiums. It's also referred to as an ICHRA plan in some cases.
With ICHRA, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class. ICHRA classes are one of the many pros if you are wanting to consider ICHRA pros and cons.
What can be reimbursed with ICHRA?
In addition, employers can choose what they want their ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
Structuring Reimbursements to Employees
There are several ways for companies to structure reimbursements to employees. Here are a few examples.
- Give all employees the same amount: For example, you could give all employees $200/mo.
- Vary reimbursements by family size: Since individual market plans cost more for families, employers can offer more for larger families. For example, an employer could offer $200 for single employees, $300 for married employees, and $600 for employees with families. Or they could offer $100 for each additional dependent.
- Vary reimbursements by employee age: Similarly, since individual plans typically cost more for older employees, employers can elect to offer higher reimbursement amounts to older employees.
- Vary by both family size and age: Combo of the above two options.
Using QSEHRA to pay insurance premiums
Employees must be covered by a Minimum Essential Coverage (MEC) health insurance plan in order to receive QSEHRA reimbursements. However, there are a few types of plans to be aware of that cannot be reimbursed through a QSEHRA, even with a Minimum Essential Coverage Plan. This post goes into more detail about which plans work and which plans don't work with QSEHRA. QSEHRA administrators like Take Command also help to keep clients compliant and employees properly covered.
What can be reimbursed with a QSEHRA?
In addition to HRAs paying for insurance premiums, it can also reimburse for the following eligible medical expenses:
- Reimburse Insurance Premiums Only: Employers can limit reimbursements to only go towards eligible premium expenses. Typically, this refers to individual health insurance premiums but could also include eligible dental premiums, vision premiums, etc. as long as the employee has Minimum Essential Coverage (MEC) for QSEHRA or a qualified health plan for ICHRA.
- Reimburse Insurance Premiums and Medical Expenses: Most employers choose to allow medical expenses to be reimbursed too. Eligible expenses include doctor visits, copays, dental cleanings, prescriptions, eye glasses, diabetes supplies, etc. Note: Employers can choose to exclude categories of expenses (i.e., “prescriptions”) as long as the exclusion is applied fairly to everyone.
- Premiums of employees on their spouse’s group plan: Many small business and non-profit employees have access to traditional group health insurance plans through their spouse. This is great because it takes the primary insurance burden off of the small employer! However, employees may still have to pay something to participate in their spouse’s plan (usually a deduction on the spouse’s paycheck). Employers setting up a QSEHRA can choose whether or not to allow employees to make claims for these group plan premiums. ICHRA, however, does not reimburse for spouse's plan premiums. Note: In most cases, these claims will be taxable to the employee because the spouse is likely making a payroll deduction on a pre-tax basis.
Employer reimbursement for medical expenses
Employer reimbursement for medical expenses is simple with an HRA. Many of our clients reimburse employees for medical expenses in addition to reimbursing them for health insurance premiums. This is a more generous offer and helps employees to be better financially prepared for unexpected (or expected) health costs.
Qualified Medical Expenses
Qualified medical expenses that can be reimbursed by an HRA generally include those costs that would qualify for the itemized federal income tax deduction for medical and dental expenses. Here's how to know what medical expenses employers can reimburse their employers for.
The IRS allows deductions for expenses incurred in diagnosing, curing, mitigating, treating, or preventing diseases that impact the structure or function of the body, such as bones or other body parts.
These expenses cover the fees for authorized medical services rendered by doctors, surgeons, dentists, and other healthcare professionals.
Qualified medical expenses encompass not only the expenses for medical services but also cover the costs of necessary equipment, supplies, transportation, and even lodging (within certain limits) to obtain the required care.
Qualified medical expenses must primarily alleviate or prevent a disability or illness. Expenses for general health, like vitamins or vacations, are not eligible for HRA reimbursement.
Medical expenses eligible for certain HRAs include insurance premiums, transportation costs for medical care, qualified long-term care services, and limited amounts for qualified long-term care insurance contracts.
Employers may limit reimbursable expenses, so review plan documents and benefit materials to understand what expenses are eligible.
Health insurance premiums an HRA can reimburse
Some HRAs do not allow for reimbursement of insurance premiums. For the HRAs that do allow premium reimbursement, employees may claim reimbursement for premiums they pay, including:
- Major medical individual health insurance premiums
- Medicare Part A or B, Medicare HMO, and employer-sponsored health insurance premiums
- Medicare Advantage and Supplement premiums
- COBRA premiums
Reimbursement requirements can vary depending on the specific HRA in question. It's important to consider factors such as whether the medical plan meets the minimum essential coverage criteria.
If a plan also provides payments for non-medical expenses, an employee can be reimbursed for the premiums for the medical care portion of the policy. The cost of the medical portion must be separately stated in the policy or billed on a separate statement.
Exclusions
Both ICHRA and QSEHRA do not work with short-term limited duration plans, association health plans, or any plan that does not meet the requirements set forth by the ACA.
ICHRAs cannot reimburse for spousal employer premiums, but QSEHRAs can. ICHRA does not work with medical sharing plans but QSEHRA can if accompanied by a Minimum Essential Coverage plan (MEC).
Expanding your reimbursement offerings with a health stipend
If the expenses covered by an HRA do not meet your reimbursement needs, there are alternative options available to offer your employees a comprehensive health benefit.
A health stipend operates in a similar manner to an HRA, enabling employers to provide reimbursement for their employees' medical expenses, out-of-pocket costs, and health insurance premiums.
A health employee stipend offers greater flexibility and fewer restrictions compared to an HRA. This means that employers have the freedom to reimburse a wider range of items beyond what is allowed by the IRS.
Just remember that a health stipend will be subject to income tax, payroll tax and employer tax (all things HRAs solve for).
How Take Command can help
If you still have questions about reimbursing health insurance premiums with an HRA, we have a slew of resources available for you, and a group of experts standing by.
Check out our comprehensive guides to HRAs, ICHRA and QSEHRA. This guide walks you through what can be reimbursed with QSEHRA. Chances are, if you have a question about HRA administrators, we've got an answer for you!
This post was originally published in 2020 and has been updated with new information and insights for 2023.
