Informally repaying an employee's individual policy is where trouble starts. The IRS treats it as an employer payment plan, with potential excise-tax exposure of $100 per day per applicable employee. A properly built HRA gives you predictable costs and real support for employees.
This guide covers HRA options, taxes, documentation, Medicare premiums, and the steps to take before launching a program.
Key Takeaways
- A compliant HRA can reimburse premiums and medical expenses tax-free.
- A taxable stipend is flexible but is treated as wages.
- Informal premium reimbursement invites ACA and IRS problems.
- The best fit depends on size, existing coverage, budget, and admin capacity.
Can an Employer Reimburse an Employee for Health Insurance Premiums?
When reimbursement is generally allowed
Employers may contribute toward a traditional group health plan, or reimburse eligible expenses through a formal HRA that meets federal requirements. An HRA is employer-funded. Employees buy eligible coverage or incur eligible expenses, submit documentation, and get reimbursed up to the plan's allowance.
Qualifying employer contributions and reimbursements of actual medical expenses can be excluded from employee income under IRC sections 106 and 105(b).
Why informal reimbursement is risky
Paying or reimbursing an individual premium while promising tax-free treatment, with no compliant plan behind it, is the classic mistake.
- IRS Notices 2013-54 and 2015-17 treat these as employer payment plans that fail ACA market reforms.
- Making the payment taxable does not cure the problem if it is conditioned on buying coverage.
- Unconditional extra pay, not tied to any policy, is a different thing: it is simply wages.
- Penalty exposure is statutory. Do not treat scarce public examples of employer-specific cases as a green light for informal reimbursement.
Group-plan contributions are different
An employer paying part of a group plan premium is not reimbursing a separately purchased individual policy. Employees often pay their share through payroll deductions, and a written section 125 cafeteria plan can make those deductions pre-tax, generally exempt from income-tax withholding and FICA.
Which HRA Options Can Employers Use?
How an HRA works
Employers set up an HRA by adopting a written plan, setting an allowance, defining eligible expenses, requiring substantiation, and reimbursing approved claims up to the available balance.
The employer controls funding. Depending on the HRA type, coverage can include premiums alone or premiums plus other medical expenses.
| Type | Who it fits | 2026 funding |
|---|---|---|
| ICHRA | Any employer size | No federal cap |
| QSEHRA | Non-ALE (under 50 FTEs) with no group plan | $6,450 self-only / $13,100 family |
| Integrated HRA | Employees enrolled in group coverage | Depends on integration method |
| EBHRA | Employers offering a group plan | $2,200 |
Individual Coverage HRA (ICHRA)
An ICHRA reimburses employees for individual insurance (or Medicare) and can replace a traditional group plan. An employee cannot be offered both an ICHRA and group coverage, though different permitted classes can receive different arrangements.
- Classes include full-time, part-time, salaried, non-salaried, seasonal, and same-rating-area groups.
- Terms are generally the same within a class.
- When another class gets group coverage, minimum class sizes apply: 10 employees for employers under 100, and 20 for those over 200. Offers count, not enrollment.
- Employee affordability uses a 9.96% threshold for 2026 plan years.
An affordable ICHRA offer generally blocks the Marketplace premium tax credit even if the employee declines it. An unaffordable offer lets the employee opt out and still qualify for the credit.
Qualified Small Employer HRA (QSEHRA)
A QSEHRA suits employers with fewer than 50 full-time-equivalent employees that offer no group plan. Core rules include:
- Employer-funded only, with no salary reductions
- Uniform terms, though benefits may vary by age and family size
- Partial-year benefits prorated by eligible months
An unaffordable QSEHRA reduces the employee's monthly premium tax credit by the permitted benefit, not by claims paid.
HRAs that supplement group coverage
An integrated HRA requires actual enrollment in qualifying group coverage and helps with out-of-pocket costs.
An EBHRA also works alongside a group plan, but it cannot reimburse individual major-medical premiums, ordinary group premiums, or Medicare.
Taxable Stipends Versus Direct Premium Payments
Taxable health insurance stipends
A stipend is additional compensation. Run it through payroll with income-tax withholding and employment taxes. For 2026, employer Social Security tax is 6.2% up to $184,500, plus 1.45% Medicare, and FUTA still applies.
The upside is simplicity and flexibility. The downsides:
- Employees pay tax on the money.
- Marketplace calculations include taxable wages, which can affect premium tax credits.
- Requiring proof that a stipend bought a specific individual policy brings back the employer-payment-plan problem.
Why a stipend is not an HRA
An HRA needs a formal plan, defined eligible expenses, and substantiation. A true stipend is wages. Never describe it as a tax-free medical reimbursement.
Direct payment of individual premiums
Do not assume you can pay an employee's individual-market premium directly, or reimburse it informally, and keep tax-free treatment. Paying a carrier for coverage under a properly established group plan is a different arrangement entirely.
Tax credits and employee consequences
ICHRA and QSEHRA participation can change an employee's premium tax credit, which is why required notices address it. Advance credits that exceed the final credit must be repaid with the tax return. Encourage employees to talk to a tax professional rather than assume every contribution improves their position.
Medicare premiums
Medicare Parts B and D and qualifying Part A premiums count as medical expenses, but HRA rules still control.
- ICHRA: Can reimburse Medicare and Medigap premiums; the employee needs A+B or C each covered month.
- QSEHRA: Can reimburse Medicare and Medigap premiums, and Medicare counts as minimum essential coverage.
- EBHRA: Cannot reimburse Medicare premiums.
Employers also cannot offer incentives that push Medicare beneficiaries away from a primary group plan. A compliant class-wide ICHRA offer is not such an incentive.
How to Set Up and Claim a Compliant Reimbursement
- Plan and document. Define employee classes, allowances, covered expenses, claim deadlines, carryover, and unused-fund treatment in a written plan.
- Confirm eligibility. Collect proof of coverage and attestations, apply rules consistently, and handle family coverage the same way for everyone.
- Send notices. Send ICHRA notices generally 90 days before the plan year, and to new hires by their first coverage date. Use the same 90-day timeline for QSEHRA, but give new hires notice on or before first eligibility, not 90 days after hire.
- Substantiate claims. Employees submit a premium invoice, insurance card, receipt, or explanation of benefits (EOB). Keep EOB copies. Reimburse only verified, eligible expenses, and protect health information.
- Handle payroll and reporting. Report QSEHRA permitted benefits in W-2 Box 12, Code FF. File Forms 1094-C and 1095-C for ALE ICHRAs. HRAs may owe the PCORI fee on Form 720 ($3.84 per covered life for plan years ending October 2025 through September 2026). ERISA plans may need an SPD and Form 5500.
- Review annually. Revisit limits, notices, documents, classifications, and claims procedures each plan year.
An adviser or payroll professional can catch errors before they affect many employees.
How Should an Employer Choose the Right Approach?
Compare the decision factors
Weigh company size, existing group coverage, desired employee choice, budget predictability, locations, and administrative capacity. A group plan suits an employer wanting one selected option. An HRA suits an employer wanting defined contributions and more choice.
For context, KFF's 2026 survey puts the average family premium at $28,303, with employers paying $20,832.
Match situations to options
- Existing group plan: Keep it, or add a compliant supplemental HRA for out-of-pocket costs.
- Small employer, no group coverage: Check QSEHRA eligibility.
- Any size, wanting individual coverage: Research ICHRA requirements.
- Maximum payment flexibility: Weigh the tax cost of a stipend.
Get professional help first
Muneris Benefits, an independent Virginia agency operating since 1990, helps employers compare insurance options, build customized benefit packages, manage healthcare costs, and keep up with changing compliance rules across Virginia and West Virginia. Talk with its team before promising tax-free reimbursement, changing a group plan, or choosing an HRA structure.
Frequently Asked Questions
Can an employer reimburse an employee for health insurance premiums?
Yes, through a compliant HRA or group health plan. Informally reimbursing individual premiums can create tax and ACA problems.
How do I claim reimbursement for health insurance?
Employees generally submit proof of coverage and premium payment through the employer's claim process, along with any documentation the plan requires, such as an EOB.
What are the rules for reimbursement?
You need written plan documents, defined eligibility and qualified expenses, coverage verification, substantiation, required notices, and correct tax treatment under current federal rules.
Is a health reimbursement taxable?
Compliant HRA reimbursements can be tax-free. Stipends and reimbursements that fail the requirements are generally taxable wages.
What expenses can an employer reimburse?
It depends on the plan. Options can include premiums, Medicare premiums, deductibles, copayments, and prescriptions, when permitted and substantiated.
Can a company reimburse an employee for Medicare premiums?
Some HRAs can, including ICHRAs and QSEHRAs, but an EBHRA cannot. Verify eligibility, coverage requirements, and plan terms before paying.
