While HRAs have been around for a while, there are currently two health reimbursement arrangements, relatively new to the market, which allow employers to reimburse for health insurance premiums. Under these arrangements, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses. Let’s look at the two types of HRAs that can be used to pay insurance premiums.
Can an HRA be used to pay insurance premiums?
Yes, with the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA).
For a quick refresher: The QSEHRA is designed for employers with less than 50 employees. This type of HRA includes a maximum reimbursement, which changes annually. Here is all the info you need on the 2021 QSEHRA maximum reimbursement.
The ICHRA is for companies of any size. There are no limits to how much an employer can offer for reimbursement. In fact, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class.
Let’s look a bit more closely at both types and how they pay for insurance premiums.
How ICHRA can be used to pay insurance premiums
Employers can choose what they want their ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
- Qualified Medical Expenses Only
Employers can also choose how to structure reimbursements to employees:
- 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.
How the QSEHRA can be used to pay insurance premiums
To qualify for a QSEHRA, employees must be covered by a Minimum Essential Coverage (MEC) health insurance plan. 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.
- 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.
Take Command Health, the HRA experts
If you still have questions about using an HRA to pay insurance premiums, we have a slew of resources available for you, and a group of experts standing by. Check out our comprehensive guides to ICHRA and QSEHRA. This guide walks you through what can be reimbursed with QSEHRA. Chances are, if you have a question about HRAs, we've got an answer for you!