Can I use an HRA to pay insurance premiums? 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 to use an HRA to pay for 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 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.
In addition, employers can choose what they want their ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
- Qualified Medical Expenses Only
Employers work with an ICHRA administrator to 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.
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.
Reimburse for insurance premiums with an HRA
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.
