QSEHRA health insurance plans is also referred to as a qualified small employer health reimbursement arrangement (or QSEHRA). They are a tax-advantaged HRA that allows small business owners to reimburse for health insurance tax-free. But a key QSEHRA rule is choosing a QSEHRA health insurance plan that plays by the rules. Here's a list of which insurance plans make the cut and which ones don't.
QSEHRA health insurance plans
Your QSEHRA health insurance plan can be structured in a number of ways to optimize your employee benefits. Here are a few QSEHRA design options.
- 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.
- 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.
- 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.
What qualifies as a QSEHRA health insurance plan?
To be eligible for QSEHRA reimbursement, employees will need to purchase a plan that mets the Minimum Essential Coverage requirement set forth by the Affordable Care Act. MEC plans include the following:
- Major medical plans: Major Medical plans are those compliant with the Affordable Care Act (ACA) and qualify as Minimum Essential Coverage. If you purchased your plan through Healthcare.gov or your state’s public marketplace, your plan is a Major Medical plan, and your reimbursement through QSEHRA will be tax-free.
- Student insurance
- Your spouse’s plan (varies by QSEHRA plan): If you’re covered by your spouse’s group insurance plan there are some nuances to know regarding premium reimbursement. First, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. Second, most group plans are already paid on a pre-tax basis from your spouse’s paycheck. This is great! However, the IRS doesn’t want you to “double dip” and also get a pre-tax QSEHRA reimbursement, so your QSEHRA claim for your premium may be paid on a taxable basis (plan depending). If you can verify that your premium is paid post-tax by your spouse (very rare), then you can still be reimbursed tax-free through QSEHRA!
- Government plans: Medicare, Medicaid, CHIP (children's health insurance programs), Tricare, and VA Care are all eligible healthcare plans and qualify. If you are on one of these plans and pay a monthly premium out of pocket, those can be reimbursed through QSEHRA tax-free.
- Dental Insurance & Vision Insurance Plans: Monthly premiums paid for individual and dental insurance plans can be reimbursed tax-free through QSEHRA. If you have dental and vision benefits through your spouse’s employer, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. In addition, if your spouse pays the premiums for your dental and insurance plans pre-tax, you can only be reimbursed for these premiums on a taxable basis.
- Limited Benefit Plans: Limited Benefit Plans are usually significantly cheaper than Major Medical plans but only provide a fixed amount of benefits (vs. unlimited benefits). These plans include short-term plans, fixed indemnity plans, accident plans, and any other plan that pays a medical benefit. As long as you also have a Minimum Essential Coverage health plan, and the limited benefit plan pays a medical benefit to the provider (not a cash benefit to you), the premiums on these plans can be reimbursed tax-free through QSEHRA.
This post will provide you with more details about where to buy MEC plans for QSEHRA.
Non-Eligible QSEHRA health insurance plans
If you would like to use an alternative plan like a sharing ministry, short-term plan, or indemnity plan, you should know that these types of plans will not meet the MEC requirement on their own. They need to be accompanied by a "Skinny MEC" plan to check all the boxes to be QSEHRA compliant.
- Cash Benefit Plans: Cash Benefit Plans pay you cash if you’re sick or injured. These plans are sometimes called Critical Illness, Gap, or Out-of-Pocket plans. The premiums on Cash Benefit Plans are not eligible for reimbursement, because these plans by definition do not provide a medical benefit. If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement.
- Other Types of Insurance Plans: Additional insurance policies that do not pay a medical benefit and therefore cannot be reimbursed through QSEHRA include: Life insurance policies, policies providing payment for loss of earnings, policies for loss of life, limb, sight, etc. and auto insurance.
- Health Sharing Plans: Health Sharing Plans like Medi-Share are not technically insurance under the Affordable Care Act, and the “premiums” you pay to be a member of a Sharing Plan, typically referred to as a “monthly share” amount or similar, are not recognized by the IRS as being actual insurance premiums under IRS Section 213(D). Therefore, the monthly share amounts cannot be reimbursed through QSEHRA. The good news is there are options to purchase "Skinny MEC" in addition to sharing plans for yourself and your family that will allow these plans to work with QSEHRA.
Check out this post to learn more about these “Skinny MEC” plans.
Want to learn more?
With the ability to compare plans based on preferred doctors and prescription coverage, buying a plan has never been easier. We've also written a comprehensive guide with pretty much everything you'll ever need to know about shopping for individual health insurance. Our QSEHRA Administration platform is user-friendly and our team of experts is always available to answer any questions you might have! Chat with us on the bottom right hand of your screen to ask questions or schedule a call!
