I work for a small business. My employer has offered me a Health Reimbursement Arrangement (HRA), with money to buy health insurance on my own. What are my options?
Answer: Your options will depend on the type of HRA you have from your employer. If you work for a small employer (with up to 50 full-time employees), you may be offered multiple kinds of HRA, but three that are relatively new under federal law are:
- An “individual coverage” HRA. Under this HRA, your employer funds an account to reimburse you for the premiums for an Affordable Care Act-compliant individual health insurance policy and/or other qualified medical expenses, instead of offering a traditional health plan.
- An “excepted benefit” HRA. Under this HRA, your employer must still offer you the opportunity to enroll in a traditional health plan. In addition to that plan, the employer may put funds in an HRA account (up to $2,100 in 2024) to help you purchase vision, dental, short-term, or other insurance products not subject to the Affordable Care Act’s full range of consumer protections. Excepted benefit HRAs may also be used to pay directly for health care services and for cost-sharing like deductibles and co-payments.
- A “qualified small employer” HRA. The “QSEHRA” is available only to small employers and allows them to fund an HRA for their employees on a tax-free basis to reimburse premiums for health insurance and other qualified medical expenses. As noted below, your eligibility for premium tax credits through the Marketplaces will be assessed differently, depending on whether you have an individual coverage HRA or a QSEHRA.
Individual Coverage HRAs
If your employer offers you an individual coverage HRA, you should visit the health insurance Marketplace in your state to determine whether you are eligible for federal premium tax credits or cost-sharing help. You can use the Individual Coverage HRA Affordability Tool on the HealthCare.gov website to determine which option, an HRA or subsidized Marketplace plan is right for you. You will need to provide information about the amount your employer is contributing to your HRA from the HRA notice your employer provided you.
If your employer’s contributions to the HRA are small, so that your after-HRA premiums for the lowest cost silver-level Marketplace plan available to you would exceed 8.39 percent of your household income in 2024, you may be eligible for premium tax credits through the Marketplace. If you choose to purchase Marketplace coverage with premium tax credits, you must opt out of the HRA. Accepting both the HRA and Marketplace premium tax credits will subject you to additional tax liability.
If you choose to accept the HRA, you may use it towards premiums for Affordable Care Act-compliant individual market coverage (or certain student health plans and Medicare). If your employer also offers you a plan that allows you to pay the remainder of the premiums using pre-tax dollars (often called a “cafeteria plan” or a “salary reduction agreement”), you must purchase your individual market policy outside of the Marketplace to take advantage of the salary reduction agreement. Unfortunately, Marketplace Navigators are not permitted to assist you with the purchase of an off-Marketplace plan. Because many companies aggressively and deceptively market insurance products that do not comply with the Affordable Care Act’s consumer protections and are not permissible types of insurance to purchase with an HRA, you should consult your employer’s human resources department or state department of insurance for referrals to a qualified, reputable broker who can help ensure you are buying Affordable Care Act-compliant coverage. (26 C.F.R. §54.9802-4; 26 C.F.R. § 1.36B-2; Individual Coverage HRA Model Notice)
Excepted Benefit HRAs
An excepted benefit HRA is designed to supplement your employer’s traditional health plan. It can be used to pay for out-of-pocket expenses like deductibles, co-pays, and services not included in your traditional coverage. It can also be used to help pay for more limited insurance products, such as vision or dental coverage. Note that these products not replacements for a comprehensive health insurance plan. And, unlike your employer plan, some of these products can deny you coverage of a pre-existing condition. If your employer offers you an excepted benefit HRA, and you are interested in purchasing a supplementary product, you should consult your employer’s human resources department for qualified, impartial advice on the financial risks and benefits of purchasing such supplementary products. Marketplace Navigators are not permitted to help you select an excepted benefit product. (26 C.F.R. §54.9831-1; IRS FAQs for New Coverage Options for Employers and Employees; IRS Revenue Procedure 2023-23).
Qualified Small Employer HRAs (QSEHRA)
A qualified small employer health reimbursement arrangement (HRA) allows small employers who do not offer traditional health coverage to fund an HRA for their employees on a tax-free basis to reimburse for a wide range of medical expenses, including health insurance premiums. In order to take advantage of the QSEHRA, you must be enrolled in health coverage that qualifies as minimum essential coverage. Your employer must fund the HRA without any contributions from the employee and those funds cannot exceed $6,150 per year for self-coverage ($12,450 for family coverage) in 2024.
If you have a QSEHRA, you can apply for a Marketplace plan, and if otherwise eligible you may receive premium tax credits if the contribution from your employer is small enough that coverage through the Marketplace is not affordable to you. Note: While you can maintain your QSEHRA and also qualify for premium tax credits, this is not the case if you have an Individual Coverage HRA (see above). To determine accurate eligibility for premium tax credits, you must inform the Marketplace about your QSEHRA, and the amount you receive in tax credits must be reduced by the amount of your employer’s contribution to your HRA. (26 U.S.C. § 9831; 42 U.S.C § 36B(c)(4); IRS Rev. Proc. 2023-34).