We love the qualified small employer health reimbursement arrangement (or QSEHRA) for its ability to help small business owners afford health insurance for their team. Employees also love this tax-advantaged HRA because they get to choose the plan that works for them, and they can take it with them when they leave. But a key part of being reimbursed for health costs tax-free is choosing a QSEHRA plan that plays by the rules. Here's a list of which insurance plans make the cut and which ones don't.
Before an employee can participate in a QSEHRA, one must provide proof of Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g). MEC is a term that came from the Affordable Care Act. Prior to 2019, individuals were required to purchase a health plan that met MEC standards or pay a tax penalty. While the tax penalty has been lifted nationally (some states still have a state penalty), the law has not gone away and individuals are still required to enroll in qualified health plans.
There are several requirements for a plan to be considered MEC including coverage of the 10 essential health benefits (such as preventative and wellness services, immunizations, maternity, mental health, etc.) and limits on cost sharing (copays, deductibles, and out of pocket maximum).
What types of insurance integrate with QSEHRA plans?
- 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 as Minimum Essential Coverage. 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.
Non-Eligible Premiums for QSEHRA 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.
- 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 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. However, there is a proposed IRS update that might change that! 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.
Pro-tip: MEC plans (or as we call them, Skinny MEC plans) can also be a nice complement to sharing ministries, short-term, and other alternative plans by covering preventive services not typically covered by alternative plans.
This post will provide you with more details about where to buy MEC plans for QSEHRA.
"Skinny MEC" plans to pair with a sharing ministry and QSEHRA plan
Here are some Skinny MEC plans to consider if you are looking for one to work with your sharing ministry.
- SafeGuard Health offers three tiers of MEC plans, depending on how much coverage you’re looking to get from this plan. It provides some flexibility for you. In general, you may not want to pay for a lot of extra things built into the cost of the MEC, especially if you’re happy with your current plan and just need a MEC plan to get QSEHRA-compliant.
- North American Health Plans offers a preventative MEC plan called SelectMed. There are also three levels of SelectMed plans available, and you can read through the benefits in each tier on their brochure here. Heads up: This MEC plan is not available in Alaska, Hawaii, Massachusetts, and New Hampshire.
Looking for more information?
For more information, check out our comprehensive QSEHRA guide. We wrote this guide about what can be reimbursed, ensuring that you get the most benefits out of the QSEHRA. Or maybe we’ve answered your questions in our QSEHRA FAQ page.
You can also chat with our team anytime on our site. We would be happy to help you.