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 HRA or 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, these types of HRAs might affect your tax credit eligibility. The Health Connector’s application collects information about employer offered HRAs from you and uses this information to determine your eligibility for tax credits through the Health Connector.

Keep your application information up to date. If your income changes, you should update the information you gave us about your expected income in your application. If your employer stops offering an Individual Coverage HRA or a QSEHRA, you should update your application since that may affect your tax credit eligibility.

You can read more below about Individual Coverage HRAs and QSEHRAs.

Step 1

Find out if the Individual Coverage HRA or QSEHRA available to you is considered affordable or not. By completing an application for health coverage, you can find out if your Individual Coverage HRA or QSEHRA is considered affordable under federal law.

Step 2

If your Individual Coverage HRA or your QSEHRA is considered affordable under the federal standard and you are eligible for subsidies through the Health Connector (including Advance Premium Tax Credits), you can lower the amount of Advance Premium Tax Credit (APTC) that you have applied towards your health insurance to $0. This should protect you from owing any of the tax credit back at the end of the year when you file your taxes. You can lower your APTC amount to $0 in your online account at MAhealthconnector.org (learn how). You can also get help with lowering your APTC amount over the phone by calling Customer Service or in person with an Enrollment Assister.

If your HRA is not considered affordable, actions you should take are different depending on the type of HRA you have:

  • If your Individual Coverage HRA is not considered affordable, you can opt out of the HRA and may claim an APTC for yourself and any family members enrolled in Health Connector coverage if you are otherwise eligible. If you would like to enroll in Health Connector coverage with an APTC, tell your employer that you are opting out of the HRA.
  • If your QSEHRA is not considered affordable, you can lower the amount of APTC that you have applied towards your health insurance to account for the QSEHRA amount that is available to you. As a general guideline, you may want to lower your APTC amount by the same dollar amount you have available to you as a QSEHRA. For example, if your employer offers $50 a month in a QSEHRA, you may want to lower your APTC by $50 each month.

Step 3

Keep your application information up to date. If your income changes, you should update the information you gave us about your expected income in your application. When you update your account, you can see if your Individual Coverage HRA or your QSEHRA is still considered affordable based on your new income. If your employer stops offering an Individual Coverage HRA or a QSEHRA, you may want to increase the APTC amount you apply toward your premium.

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 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 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 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. The Health Connector’s application collects information from you about your employer offered HRAs and uses this information to determine your premium tax credit eligibility.

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.

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.