Small Business

What to know: Small business HRA and an employee on spouse's plan

by Ali

Rolling out your company HRA is exciting and a great investment in your employees retention. Many of your employees will have questions regarding if they are eligible to participate based on the type of health insurance they carry either through the marketplace, employer group plans, faith based plans, or perhaps even no insurance at all.  

Knowing the facts

As your HRA is designed to reimburse employees for monthly premiums and medical expenses  paid out of pocket your employees that are enrolled in health insurance through their spouse’s employer may wonder if they can participate in the small business HRA too.  

The good news is that employees with insurance from their spouse’s employer (referred to as an Employer Group Plan) can and should participate in the HRA! Employees participating in Employer Group Plan’s can utilize their monthly allowance to receive reimbursement for out of pocket expenses for themselves and their family.  

Copays, deductibles, prescriptions, and more are eligible for reimbursement. Don’t forget, the reimbursements your employees receive through the HRA are tax-free when they have insurance! 

QSEHRA Plan Designer

What about the premiums?

Premiums paid on an Employer Group Plan are a little trickier to reimburse because these premiums are generally paid with pre-tax dollars via a payroll deduction. When the premiums are paid with pre-tax money they are not eligible for the tax-free QSEHRA reimbursement. The IRS views this as double-dipping the tax-free savings.

While the IRS does not allow for employer group plan premiums to be reimbursed through QSEHRA, they have made an exception (See Q48) that allows for employers to reimburse group plan premiums on a taxable basis. This reimbursement would be added to the employees taxable wages and would be reported as income on the employees W-2. Take Command Health employers have the ability to opt-in to this added reimbursement when they create their QSEHRA. Take Command Health will still review the insurance coverage of the employees on group plans, verify their monthly premium amount, and include the amount claimed for pre-tax and post-tax reimbursements on the monthly reimbursement reports.

In the rare case that your employee pays the premium with post-tax dollars for the employer group plan then the premium will be eligible for reimbursement through the QSEHRA (tax-free). Only the premium portion the employee pays out of pocket is eligible (the employer premium portion is not eligible for reimbursement). Generally you will not find many employees participating in group plans and paying post-tax. 

QSEHRA Plan Designer

Take Command Health is here to help

We understand navigating HRAs and the IRS rules can be tricky. Take Command Health is ready to help you set up and administer your HRA. We will help onboard your employees, handle the paperwork, and sweat the details so you don’t have to.  

We've created a great resource just for small business owners like you! Check out the reimbursement rules chapter in our handy new QSEHRA Guide. 

Learn more about our Small Business Platform 

Picture of Ali

Hi, I'm Ali! I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!