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Small Business Employee Benefits and HR Blog

How does the QSEHRA work with Medicare?

The qualified small employer health reimbursement arrangement (QSEHRA) is a popular health benefits solution for small businesses. Not only does the QSEHRA allow small businesses to set their own budgets, but it supports employee choice as well.

With a monthly allowance of tax-free money, employees are free to receive reimbursement for a wide variety of health care expenses, including premiums for the insurance policy of their choice.

Most employees will seek coverage through the individual insurance market or through a spouse’s company-sponsored policy. Some employees have different sources of coverage, though, including Medicare.

In this post, we’ll clarify how the QSEHRA works for employees who have Medicare in any form.

Medicare Part A

Employees who enroll in Medicare Part A voluntarily can receive reimbursement for the premiums they pay for coverage.

However, those enrolled automatically in Medicare Part A through social security should know the Internal Revenue Code (IRC) doesn’t consider the payroll tax paid for Medicare Part A a medical expense. As such, employees can’t be reimbursed for this expense through their QSEHRA.

Medicare Part B

As supplemental health insurance, Medicare B and associated premiums are a valid medical expense.

Employees can discover the exact amount of their premium by checking the information they receive from the Social Security Administration.

Medicare Part D

Medicare Part D is a voluntary prescription drug insurance program for people covered by Medicare Parts A or B.

Employees can receive reimbursements for Medicare Part D premiums through the QSEHRA.

Medigap and Medicare Advantage

Private health insurance policies related to Medicare, including Medigap and Medicare Advantage, are valid medical expenses and are reimbursable through the QSEHRA.

The QSEHRA, minimum essential coverage, and Medicare

The IRC allows employees to receive QSEHRA reimbursements free of income tax, provided they have minimum essential coverage (MEC).

With Medicare, employees have MEC if they have any of the following:

  • Medicare Part A only
  • Both Medicare Part A and Medicare Part B
  • Medicare Advantage only

Employees don’t have MEC if they have:

  • Medicare Part B only

With MEC through Medicare, employees are entitled to receive all QSEHRA reimbursements free of income tax. This includes both Medicare premiums and other qualified medical expenses reimbursed through the QSEHRA.

Conclusion

The ability to help employees pay for their Medicare premiums is yet another advantage of the QSEHRA.

Nearly all expenses associated with Medicare are reimbursable through the QSEHRA and, with MEC, employees can receive these reimbursements and others completely tax-free.

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