2024 | Do HRAs work for self-employed health insurance?

If you’re looking for health insurance for self-employed individuals, you’ve probably asked yourself, Is a self employed person eligible for an HRA? Possibly! There are options for small business health insurance for owners, and they are probably more affordable than you think! Many freelancers like you are opting for a new reimbursement model for healthcare for business owners  which boasts many benefits, helps with budget control, and is more predictable. 

Health insurance for self-employed 101

If you own a business that brings in income, but you have no employees, you’re considered self-employed.

And if you’re self-employed, you’ve probably gone down the rabbit hole of trying to figure out the most affordable health insurance. In the past, you probably had a group plan through your employer, but now, on your own, that’s simply not the case. 

Here are your options:

You could opt to go without health insurance (do not recommend!)
You could choose a more affordable sharing ministry (not “real” insurance but a viable option for many)
You could have coverage through a spouse’s group plan through their work
You could purchase a traditional health plan on Healthcare.gov and hope you get subsidies (otherwise, quite expensive!)
You could purchase an individual plan that works best for you and get reimbursed tax-free from your business, lowering your taxable income

That last bullet sounds pretty sweet, right? 

What we are referring to there is a health reimbursement arrangement. Fair warning – some self-employed folks qualify for health reimbursement arrangements, others don’t. 

Let’s walk through the scenarios and see if you qualify for this affordable option for health insurance for freelancers. 

What is an HRA?

A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.

The use of new reimbursement models like QSEHRA and ICHRA put the employer’s reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements. Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis.

Is a self employed person eligible for an HRA?

Whether or not self-employed owners can participate in an HRA depends on how the plan and business are set up. In order for a business owner to participate in an HRA, they must be considered an employee of the business.

C- Corps are legal entities separate from the owners. Under a C-corporation the business owner and dependents can utilize an HRA!
S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up an S-Corp owner that owns more than 2% of the company is considered self-employed and not an employee. The bad news? Since S-Corp owners are not employees, they typically cannot participate in an HRA. The good news? Self-Employed individuals can already deduct some health insurance expenses without an HRA.
We strongly recommend S-Corp owners talk to their licensed tax professional or CPA.
Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the HRA as a dependent of the spouse.
Sole-Proprietorships are unincorporated businesses owned and operated by one individual with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is a W-2 employee, then the owner can access the HRA as a dependent of the spouse (for QSEHRA only).

If you’re self-employed with no employees and you’re married, this post walks you through the steps you can take to participate in an HRA.

How do insurance and HRA coverage work for self-employed? 

By design, HRAs are user-friendly. Once you’ve determined you’re eligible for self-employed health benefits through an HRA, actually setting up and maintaining your plan is simple!

Design your plan. You’ll determine who in your business will be eligible for the HRA and how much you’ll allocate for monthly reimbursement funds. You’ll have a few options to satisfy this requirement as a self-employed. For more information on this, review how to qualify for an HRA as self-employed.
Sign up for your individual health insurance. Because your HRA is not part of a group health care plan, you will need to sign up for your health care plan. You’ll provide proof of coverage as normal when picking up prescriptions or attending doctor’s appointments.
Provide proof of expenses. Keep a record of all paid medical expenses that you plan to submit for reimbursement. Simply take a picture of paid receipts and submit them to your HRA portal. 
Receive reimbursements. Each month, you will receive reimbursement checks from your employer (your business!) covering the approved expenses. 

For a more comprehensive list of what can be reimbursed through an HRA, check out this post.

HRA requirements for health insurance for self-employed

If you’ve discovered you’re eligible for an HRA through one of the qualifications listed above, let’s discuss your plan options. Look at the following HRA structures to determine which scenario is most appropriate for you.

One-person 105 HRA

Well, it’s not a real “plan” as much as it is a loophole in Section 105 of tax legislation. You may have heard it referred to as a “Single Participant HRA” or “Section 105 HRA”. 

Essentially, the Self-Insured Medical Reimbursement Plan states that Section 105 HRAs must be integrated with a group health insurance plan. It does not specify the size of that group. In other words, if you’re a party of one, you’re in luck!

No clause states that you, as a self-employed individual, cannot participate in an individual health care plan and integrate it with an HRA. As long as no additional employees are being discriminated against through their exclusion from the HRA, you’re good to go.

For a more in-depth discussion of One-person 105 HRAs, check out this article.

Need help with health insurance for self-employed?

Hopefully we’ve been able to shed some light on your options for health insurance for self-employed. While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business and how HRAs could help. Setting up a small business HRA or setting up an ICHRA is simple and quick, and our team is here to help if you need it.

We have a ton of excellent resources available to you, including FAQ pages for the ICHRA and QSEHRA and many informational posts available on our blog.

This post was originally published in 2020 and has been updated in 2024 to reflect the latest policy changes.