When the federal government implemented the ACA, employers could no longer reimburse employees for individual health insurance premiums. They may offer wage increases to cover expenses. However, there was no way to provide the money before paying taxes or to ensure that employees spent the money on a health plan. Now, by 2025, employers of all sizes have more flexibility than ever when it comes to reimbursing their employees for health insurance.
Employers can reimburse medical premiums as well as medical expenses. This is a great advantage for business owners who are looking for a more affordable and efficient way to offer small business health insurance to their teams without having to worry about an expensive, one-size-fits-all group plan. Employers can no longer pay individual health policy premiums or reimburse employees for individual premiums before or after paying taxes (payment or reimbursement of group health insurance premiums is still allowed). This applies to any form of payment or reimbursement, regardless of whether it is made through a Section 125 plan, a Section 105 plan or another vehicle.
At a time when recruiting and retaining qualified employees is increasingly difficult, it's crucial for employers to consider (or even reconsider) their benefit offerings and determine if there are alternative or more affordable options for providing employees with health benefits. Health reimbursement arrangements (“HRA”), which may be offered in place of or in combination with an employer-sponsored health plan, can be an attractive benefit depending on the employer's situation, including size and budget. More specifically, HRAs provide employers with a way to reimburse their employees for eligible medical expenses, including insurance premiums in some cases, regardless of taxes. Small employers can use QSehra or other types of HRAs to reimburse employees for premiums and tax-advantaged health insurance expenses.
You may be eligible for the small business health care tax credit, which has the potential to provide a credit of up to 50% of the premiums you pay for your employees' health insurance (35% for nonprofit employers). A medical reimbursement agreement allows business owners to reimburse their employees tax-free for medical expenses, such as health insurance premiums or qualified medical expenses. In general, an employer would offer a separate HRA if it didn't also offer a group health plan, and would use the HRA to reimburse employees for the independent purchase of insurance (including individual market coverage). The main problem was the interpretation that any company reimbursed health insurance (including individual insurance) it was technically a group plan.
Accounts are eligible for transferred deposit insurance only to the extent that FDIC rules and regulations allow it and if transfer insurance requirements are met. With a separate HRA, employers can reimburse employees for the costs of their insurance premiums instead of buying them health plan coverage. If an employer pays 100% of the premium for a group health plan, premium payments made by the employer for employee health insurance coverage are generally not considered taxable income for the employee. The QSEHRA can meet this “same conditions” requirement even if the employer's reimbursement limit varies depending on the cost of health insurance.
When renewing your company's employee benefits package, you may wonder if you can reimburse your staff for health insurance. Employers that don't offer group health insurance can still increase an employee's taxable wage to offset the cost of individual health coverage, but they can't require the employee to purchase health insurance or certify that they have coverage to receive the taxable wage increase (or bonus). There are several different types of HRA that companies can offer to reimburse employees for their individual health insurance plans, such as the HRA for eligible small employers (QSEHRA) and the HRA for individual coverage (ICHRA). This is usually done through a group health insurance plan, in which the employer selects a plan and pays the total premium or a portion of it of her on behalf of employees.
Meeting these requirements may make you eligible for the small business health care tax credit, which can provide a credit of up to 50% of the premiums you pay for your employees' health insurance (35% for non-profit employers). Employees enrolled in a policy that meets minimum essential coverage (MEC) requirements, such as a plan offered by state or federal health insurance marketplaces, can participate in the HRA, meaning they also receive tax-free refunds. Reimbursing individual employee health insurance plans can be a cost-effective and attractive benefit for companies that seek to take care of the well-being of their employees without straying from their budgets.
