Tax Facts

8823 / How do QSEHRAs interact with HSAs?

Generally, an individual with a high deductible health plan (HDHP) and no other disqualifying health coverage is eligible to contribute to a health savings account (HSA).1 If an employee is provided a qualifying small employer HRA (QSEHRA) that reimburses any medical expense, including any cost sharing required by the employee’s health insurance, he or she is disqualified from also contributing to an HSA.

However, if the QSEHRA may only reimburse premium costs, the employee may also contribute to an HSA. Further, the QSEHRA may reimburse for expenses that qualify as permitted insurance or disregarded coverage under IRC Section 223(c) without jeopardizing HSA eligibility.

When an employer terminates a group health plan that it had provided in favor of providing employees QSEHRAs, the employee can take into account any unreimbursed medical expenses incurred by the employee when covered by the group health plan if he or she later decides to purchase a HDHP (i.e., for purposes of the HDHP deductible).2

1. IRC §§ 223(c)(3), 223(c)(1)(B).

2. Notice 2017-67.

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