QSEHRA

What to Know If You Get Help Paying for Health Insurance from Both the Health Connector and Your Employer

Overview

A Health Reimbursement Arrangement, or HRA, is an employee health benefit from your employer that reimburses you for your health care expenses up to a certain dollar amount. There are several types of HRAs. This page focuses on two types: Individual Coverage HRAs and Qualified Small Employer HRAs (QSEHRAs).

If you are offered one of these types of HRAs, you should have received a clear notice from your employer explaining the terms of the Individual Coverage HRA or the QSEHRA. The type of HRA will appear prominently on that notice.

If your employer offers an Individual Coverage HRAor a QSEHRA instead of a traditional employer health insurance plan, you can use it to help pay your monthly premiums for a health plan purchased through the Health Connector. However, if you are offered an Individual Coverage HRA or a QSEHRA and are also eligible for subsidies through the Health Connector, you might be at risk of owing money to the IRS at the end of the year when you file taxes. To learn how these types of HRAs might affect your tax credit eligibility and what to do next, visit the Health Connector’s HRA tool. Have your HRA notice on hand, as you will need information from it to use the tool.

You can also read more below about Individual Coverage HRAs and QSEHRAs and the steps you can take to protect yourself from owing money back to the IRS at tax time.

HRA Tool

Use the new HRA tool if you have been offered one of the following HRAs that can be used to help buy a health insurance plan on your own:

  • An “Individual Coverage HRA”
  • “Qualified Small Employer HRA”(“QSEHRA”)
Go to the Tool

Frequently Asked Questions

A QSEHRA is different from a Health Savings Account or a typical Health Reimbursement Arrangement.  A QSEHRA is a special type of HRA that does not have to be paired with a health insurance plan offered by the employer. With this type of benefit, your employer contributes to your medical expenses, such as your monthly health insurance premium. The employer contribution isn’t counted on your federal income taxes as income to you. This can help employees buy their own individual health insurance with the help of a tax benefit from their employer.

Individual Coverage HRAs and QSEHRAs are different from a Health Savings Account or a typical Health Reimbursement Arrangement. These are special types of HRAs your employer may offer and that do not have to be paired with a health insurance plan offered by the employer. With this type of benefit, your employer contributes to your medical expenses, such as your monthly health insurance premium. The employer contribution isn’t counted on your federal income taxes as income to you. This can help employees buy their own individual insurance with the help of a tax benefit from their employer.

You can either accept your Individual Coverage HRA or opt out. The best choice for you depends on your other health care options. For example, if you are eligible for Medicaid or for a tax credit to help you pay for Health Connector coverage, those options may be more affordable for you than purchasing coverage using the HRA. While an employee may have the option to opt out of their Individual Coverage HRA, they cannot opt out of a QSEHRA.

While an Individual Coverage HRA or a QSEHRA can be beneficial for some employees, there can be financial drawbacks if you also receive assistance through the Health Connector in the form of ConnectorCare or a tax credit. Under federal tax law, you cannot get both an Individual Coverage HRA or QSEHRA benefit from your employer and a premium tax credit through the Health Connector.

If you qualify for a premium tax credit through the Health Connector, and your employer offers an Individual Coverage HRA or a QSEHRA that is considered affordable, you may no longer be eligible for premium tax credits to use for Health Connector Coverage. If you accepted premium tax credits when offered an affordable HRA, you could owe some money back to the IRS when you file your taxes.

If your employer offers an Individual Coverage HRA or a QSEHRA, you will receive a written notice from your employer explaining the terms of the HRA. The notice contains important information regarding your Individual Coverage HRA or QSEHRA, including the dollar amount available to you to pay for medical expenses. You will need the information in this notice to determine how the HRA may affect your tax credit. Your will also need this information when you file your taxes.

Your Individual Coverage HRA or QSEHRA amount will affect the premium tax credit amount that the IRS will determine that you qualified for when you file a federal income tax return for the year. If you used more tax credit than you’re eligible for, you’ll have to pay it back with your taxes. It’s important to know that when you apply for coverage through the Health Connector, the Health Connector won’t have information about your Individual Coverage HRA or QSEHRA. This means that the tax credit amount shown on your eligibility notice or account won’t account for the HRA benefit you get through your employer. For this reason, you may not want to use all the tax credit that is shown as available to you through the Health Connector.

  • If your Individual Coverage HRA or QSEHRA amount offered by your employer is considered affordable coverage according to the federal formulas applied to the HRAs, you won’t qualify for a premium tax credit when you file your taxes at the end of the year. If you had a tax credit applied towards your premium during that year, you could owe money back at tax time
  • If your Individual Coverage HRA is not considered affordable according to the federal formula, you may still be eligible for a premium tax credit, but only if you opt out of the unaffordable Individual Coverage HRA. You may not accept the HRA and also receive a premium tax credit through the Health Connector. If you enroll in Health Connector coverage with a tax credit, it’s important that you tell your employer that you are opting out of the Individual Coverage HRA.
  • If the QSEHRA is not considered affordable according to the federal formula, you may still be eligible for a premium tax credit. However, even if you are still eligible for a premium tax credit, your tax credit amount will be decreased based on your QSEHRA benefit amount. For every QSEHRA dollar your employer offers you, you will lose a dollar of premium tax credit. It’s important to note that your eligibility for the premium tax credit will be affected even if you do not use the QSEHRA amount your employer offers.

To learn about your options, including how your HRA may affect your eligibility for a tax credit, visit the Health Connector’s HRA tool.

The Health Connector’s HRA tool will help you determine if your Individual Coverage HRA is considered affordable.

For more information about HRAs please call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m.

Do not apply a tax credit to your monthly premium through the Health Connector. If you were eligible for a tax credit but now have an Individual Coverage HRA or QSEHRA that is considered affordable, you may not claim a tax credit for yourself or any family members eligible for the HRA. This is true even if you opt out of the Individual Coverage HRA (unlike Individual Coverage HRAs, you cannot opt out of a QSEHRA). You can lower your tax credit amount to $0 to reduce your tax liability.

You can opt out of your Individual Coverage HRA if your HRA is considered unaffordable and you would like to claim a tax credit for yourself and any family members enrolled in Health Connector coverage. If you were eligible for a tax credit and now have an Individual Coverage HRA that is considered unaffordable, you may be able to receive premium tax credits if you opt out of the HRA. The Health Connector application cannot currently automatically adjust premium tax credit eligibility amounts based on an Individual Coverage HRA. Opting out of your unaffordable HRA before accepting tax credits will help you avoid having to pay money back when you file your federal income taxes. If you have questions about how to opt out of your HRA, contact your employer.

Reduce the tax credits you take in advance through the Health Connector by your QSEHRA benefit amount. If you were eligible for a tax credit and now have a QSEHRA that is considered unaffordable, reduce the amount of tax credits you take in advance through the Health Connector by the amount of your QSEHRA benefit. If you are buying coverage only for yourself, reduce the tax credits you take by the self-only QSEHRA benefit your employer offers. Similarly, if you are buying family coverage, reduce the tax credits you take by the family QSEHRA benefit your employer offers. The Health Connector application cannot currently automatically adjust premium tax credit eligibility amounts based on a QSEHRA. Reducing the tax credits you take will help you lower the chance of having to pay back some of the tax credit when you file federal income taxes. You can make this change in your online account at MAhealthconnector.org (learn how). You can also get help over the phone by calling Customer Service, or in person through one of our Enrollment Assisters.

To use the Individual Coverage HRA, you (and your family members, if applicable) must be enrolled in ACA-compliant individual health insurance coverage or Medicare for each month you (or your family members) are covered by the HRA. “ACA-compliant” means that the coverage satisfies the Affordable Care Act’s requirements related to pre-existing conditions, covered benefits, and coverage limits

To use your QSEHRA, you (and your family members, if applicable) must be enrolled in minimum essential coverage for each month you (or your family members) are covered by the QSEHRA.

You may not use either type of HRA with more limited coverage like a short-term limited-duration plan, plans that only cover “excepted benefits” (for example, a dental- or vision-only plan), or a health care sharing ministry. It’s also important to make sure that the coverage you choose to use with your HRA satisfies the individual mandate in Massachusetts.

You can purchase individual health insurance coverage with your Individual Coverage HRA or QSEHRA either through the Health Connector or off-exchange – for example, directly from an insurance company. The Heath Connector makes it easy for you to see all your options and compare plans.

However, there are special rules regarding Individual Coverage HRAs if you have a “salary reduction agreement”. If you have an Individual Coverage HRA and your employer has offered you a “salary reduction agreement” (also referred to as a “cafeteria plan” or “125 plan”) to pay the share of the health insurance premium not covered by the HRA, you may be better off using your HRA to buy individual coverage off-exchange. That’s because federal law prohibits using a salary reduction agreement to help pay for coverage through an exchange like the Health Connector.

To use an Individual Coverage HRA and a salary reduction agreement together, you must enroll in individual coverage outside the Health Connector. If you enroll in coverage outside of the Health Connector or “off-exchange”, be sure that you are enrolling in “ACA-compliant” coverage, as explained above under “If I decide to use my Individual Coverage HRA or QSEHRA, what type of coverage do I need?”.

We can answer questions about how to reduce your tax credit if you have an affordable Individual Coverage HRA or QSEHRA. You can reach us at 1-877-MA-ENROLL. However, we cannot provide tax advice. The IRS can provide additional information regarding HRAs and tax questions. Please call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m.

If you have questions about your employee health benefits, ask your employer.

The information provided here is general in nature and based on authorities that are subject to change. This information does not, and is not intended to, provide legal, tax, or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations.

April 29, 2019    Advance Premium Tax Credit, Individuals & Families  
Monday, April 29th, 2019|