Can Churches Reimburse Employees for Health Insurance?

Written by licensed insurance agent Alex Huber

Yes, churches can reimburse employees for health insurance, but they usually need to do it through a proper employer health benefit arrangement rather than by handing out informal cash for premiums. In practice, a church often has three main paths. It can offer a group health plan, it can use a Qualified Small Employer Health Reimbursement Arrangement, called a QSEHRA, or it can use an Individual Coverage HRA, called an ICHRA. HealthCare.gov says a QSEHRA allows certain small employers that generally have fewer than 50 employees and do not offer a group health plan to provide non taxed reimbursement for certain health care expenses such as individual health insurance premiums and coinsurance, as long as employees maintain minimum essential coverage. HealthCare.gov also says an ICHRA lets employers of any size reimburse employees for qualified medical expenses, including monthly premiums and out of pocket costs, without offering a traditional group health plan, as long as employees have individual health insurance coverage or Medicare. 

What churches usually should not do is simply pay or reimburse individual health insurance premiums outside a compliant arrangement and assume it is automatically safe from tax or ACA issues. The IRS says employer payment plans are group health plans that can fail Affordable Care Act market reform rules. The Department of Labor explains that employer payment plans and HRAs typically involve a promise by an employer to reimburse medical expenses, including individual market premium costs, and they must follow the rules that apply to these arrangements. 

So the short answer is this: Yes, churches can reimburse employees for health insurance, but they should usually do it through a compliant structure such as a group plan, QSEHRA, or ICHRA. The right option depends on church size, whether the church already offers group coverage, employee eligibility, tax goals, and whether employees buy Marketplace plans, private individual plans, or use Medicare. Because this topic touches health insurance, tax, and benefits compliance, churches should verify details with a licensed benefits adviser, tax professional, or attorney before making changes. Health insurance rules can vary by state, plan, and employee eligibility. This article is for general education only and not legal, tax, or medical advice. 

What does it mean for a church to reimburse health insurance?

When a church reimburses health insurance, it helps employees pay for health coverage or other medical expenses instead of, or in addition to, offering a traditional group plan. The help may go toward:

  • Monthly premium payments
  • Deductible amounts
  • Copay amounts
  • Coinsurance
  • Other qualified out of pocket costs

HealthCare.gov explains that HRAs are employer funded health benefit arrangements that reimburse employees for medical expenses. In an ICHRA, those reimbursed expenses can include individual health insurance premiums, deductibles, and copays. In a QSEHRA, small employers can reimburse qualifying health care expenses such as premiums and coinsurance on a tax favored basis if employees maintain minimum essential coverage. 

For many churches, this approach feels simpler than sponsoring a group health policy. A small church may want to give staff flexibility to pick their own doctors, hospitals, and network providers. An employee may want a Marketplace plan that fits family needs better than a one size group plan. A church may also want a clearer monthly budget. Those are real advantages, but they only work well when the reimbursement method is set up correctly. 

Why can a simple cash reimbursement create problems?

This is where many churches get confused. A pastor or church board may think, “We will just reimburse each employee for their premium.” But federal guidance has long treated certain employer payment plans as group health plans that can fail ACA market reform rules if they are not structured properly. The IRS states that employer payment plans are group health plans that will fail to comply with the market reforms that apply to group health plans under the Affordable Care Act. The Department of Labor also explains that an employer payment plan generally includes an arrangement where the employer reimburses or directly pays some or all of an employee’s individual health insurance premium. 

A church can still choose to increase taxable wages instead of creating a health plan. But taxable extra pay is not the same thing as a compliant tax favored reimbursement arrangement. It may be simpler from an administrative standpoint, yet it usually does not provide the same tax treatment or employee protection as a properly structured HRA or group plan. Churches should be careful not to confuse a general taxable compensation increase with a formal health reimbursement benefit. 

What are the main ways a church can help employees with health insurance?

Most churches look at three practical options.

1. Offer a group health insurance plan

A church can purchase a group health policy for eligible employees. This is the traditional path. The church pays part or all of the premium, and employees enroll in the church sponsored plan. This option may work well if the church wants one central benefit with clear rules and a shared provider network.

2. Use a QSEHRA

A QSEHRA is designed for certain small employers. HealthCare.gov says it generally works for employers with fewer than 50 employees that do not offer a group health plan. It allows non taxed reimbursement of certain health care expenses, such as individual premiums and coinsurance, for employees who maintain minimum essential coverage. The IRS also explains in Publication 15 B that QSEHRA reimbursements generally are not included in the employee’s gross income if the employee has minimum essential coverage.

3. Use an ICHRA

An ICHRA is available to employers of any size. HealthCare.gov says employers can use it to reimburse medical expenses, including premiums, deductibles, and copays, when employees have individual coverage or Medicare. CMS explains that reimbursements by an ICHRA may include premiums and cost sharing for individual health insurance coverage and for Medicare. 

Comparison table for churches

This table is a general guide. Actual compliance depends on plan design, employee classes, notices, tax handling, and federal and state rules. 

Who can use a QSEHRA?

A QSEHRA can be a strong fit for a small church, but it has limits. HealthCare.gov says it is generally available to small employers with fewer than 50 employees that do not offer a group health plan. The church sets a maximum annual reimbursement amount and then reimburses eligible employees for qualified expenses. Employees generally need minimum essential coverage for reimbursements to stay tax free. 

The IRS also requires QSEHRA reporting on Form W 2 using code FF for the total permitted benefit. That tells churches this is a formal employer arrangement, not casual cash assistance. For 2026, the IRS says the maximum annual QSEHRA benefit is $6,450 for self only coverage and $13,100 for family coverage, with proration for employees who are not covered for the full year. 

When a QSEHRA may work well for a church

  • The church is small
  • The church does not offer a group health plan
  • Employees want flexibility to buy their own coverage
  • The church wants a defined budget
  • The church wants tax favored reimbursements instead of informal premium payments

Who can use an ICHRA?

An ICHRA is broader. HealthCare.gov says it can be offered by employers of any size, and reimbursements can cover premiums and other qualified expenses. Employees must have individual health insurance or Medicare for each month they receive reimbursement. CMS also confirms that an ICHRA can reimburse individual premiums and Medicare premiums and cost sharing. 

This makes an ICHRA appealing for churches with varied staff needs. One employee may want a Marketplace silver plan with a lower deductible. Another may prefer a bronze plan with a lower premium. A Medicare eligible employee may need a different path. The church can set reimbursement amounts by class, subject to legal rules, while still giving employees choice. 

How do Marketplace plans and premium tax credits affect church reimbursement?

This is a very important point for employees who buy coverage through HealthCare.gov. The interaction between church reimbursement and Marketplace financial help can change the employee’s final cost.

The IRS explains that if an employee is provided a QSEHRA that counts as affordable coverage, the employee is not allowed a Premium Tax Credit for Marketplace coverage for those months. If the QSEHRA is not affordable and the employee is allowed a Premium Tax Credit, the credit is reduced by the monthly permitted QSEHRA benefit. 

ICHRAs also affect Marketplace premium tax credits. HealthCare.gov says an employer can offer an ICHRA instead of other job based insurance that meets affordability and minimum value standards. Employees may need to choose between accepting the ICHRA and claiming Marketplace financial help, depending on affordability and other rules. CMS model notices discuss this choice directly. 

For churches, this means the “best” reimbursement method is not always the one with the largest dollar amount. A church might offer an HRA that looks generous, but if it changes the employee’s access to premium tax credits, the employee’s net result may be different than expected. That is why churches should encourage staff to compare total value, not just the church contribution amount. 

What health insurance cost terms matter most?

When churches compare reimbursement options, they should look beyond the monthly premium. Employees also care about:

  • Deductible
    What the employee pays before many covered services begin to get paid by the plan
  • Copay
    A fixed amount for certain visits or prescriptions
  • Out of pocket cost
    The total money the employee may pay through deductibles, copays, coinsurance, and non covered services
  • Network providers
    The doctors, hospitals, and clinics included in the plan’s network

HealthCare.gov explains these cost terms because they affect real affordability. A cheaper premium can still leave an employee with a large deductible and higher out of pocket costs. That matters a lot for church employees with ongoing prescriptions, regular specialist visits, or children on family coverage. 

Real life church scenarios

Scenario 1: Small church with four employees

A small church wants to help a pastor, office manager, youth director, and custodian buy health coverage. It does not want to sponsor a group plan and has fewer than 50 employees. A QSEHRA may be a practical option because it allows qualified reimbursements for individual premiums and other medical costs if the church meets the rules and employees maintain minimum essential coverage. 

Scenario 2: Mid sized church with mixed staff needs

A church has 20 employees. Some want Marketplace plans. One employee is on Medicare. Another has a spouse’s plan available but wants more choice. An ICHRA may be attractive because it can reimburse individual health insurance or Medicare related expenses if the arrangement is set up correctly. 

Scenario 3: Church gives cash and calls it reimbursement

A church board tells employees to submit health premium bills and then the church adds the amount to payroll each month without a formal plan. This can create confusion. It may be treated as taxable wages, and if the church intends it as an employer payment plan, ACA market reform problems can arise. This is exactly why informal health premium reimbursement is risky. 

Scenario 4: Employee on a Marketplace plan with tax credits

A church offers a QSEHRA, but one employee already receives Premium Tax Credits on HealthCare.gov. That employee’s tax credit may be reduced, or eligibility may change depending on affordability rules. The church should not assume the reimbursement automatically lowers the employee’s true cost in every case. 

How should a church choose the right option?

Church leaders can ask these practical questions:

  • How many employees does the church have?
  • Does the church already offer a group plan?
  • Does the church want a fixed monthly budget?
  • Do employees want one shared plan or freedom to choose their own plan?
  • Are any employees on Medicare?
  • Do employees rely on Marketplace premium tax credits?
  • Does the church want tax favored reimbursements instead of extra taxable pay?

If the church is small and does not want group insurance, a QSEHRA may be a strong fit. If the church wants broader flexibility across different employee situations, an ICHRA may be a better fit. If the church wants one standard benefit and a common provider network, a group health plan may still make the most sense. 

What steps should a church take before reimbursing premiums?

Before launching any benefit, a church should:

  • Talk with a licensed health benefits adviser
  • Review whether it qualifies for a QSEHRA or wants an ICHRA or group plan
  • Confirm how reimbursements will be documented
  • Understand notice and reporting requirements
  • Explain to employees how reimbursements affect Marketplace help, Medicare, or other coverage
  • Put the arrangement in writing
  • Keep records of eligible expenses and proof of coverage where required

The IRS and federal health benefit agencies treat HRAs as formal arrangements, not casual promises. Written plan materials, employee notices, and proper payroll and tax reporting matter. 

Frequently Asked Questions

Can a church legally reimburse employees for health insurance premiums?

Yes, usually through a compliant arrangement such as a group health plan, QSEHRA, or ICHRA. Informal premium reimbursement can create ACA compliance issues if it is treated as an employer payment plan. 

Can a small church reimburse individual Marketplace premiums?

Yes, potentially through a QSEHRA if the church generally has fewer than 50 employees, does not offer a group health plan, and follows the rules. Employees usually need minimum essential coverage for tax free treatment. 

Can churches reimburse Medicare premiums?

Yes, an ICHRA can reimburse Medicare premiums and other qualified medical expenses if the arrangement meets federal rules. CMS states that reimbursements by an ICHRA may include premiums and cost sharing for Medicare. 

Is a taxable health stipend the same as an HRA?

No. A taxable stipend or pay raise is usually just compensation. It is not the same as a formal HRA with tax favored reimbursement rules and compliance requirements. 

Will a church reimbursement affect Premium Tax Credits?

It can. The IRS says a QSEHRA can reduce or eliminate an employee’s Premium Tax Credit depending on affordability and the permitted benefit amount. ICHRAs can also affect Marketplace credit eligibility. 

What is the QSEHRA limit for 2026?

For 2026, the IRS says the maximum annual QSEHRA benefit is $6,450 for self only coverage and $13,100 for family coverage, with proration rules for part year eligibility. 

Conclusion

So, can churches reimburse employees for health insurance? Yes, they often can, but the safest answer is that they should usually do it through a group health plan, QSEHRA, or ICHRA, not through an informal premium repayment method. The right choice depends on church size, employee needs, Marketplace subsidy issues, Medicare status, and the church’s budget. Because health insurance and reimbursement rules vary by state, provider, and employee eligibility, churches should verify details with licensed advisers and official federal guidance before making a change. For churches and ministries comparing health coverage options, premium costs, deductibles, copays, and provider access, atozinsuranceusa can help you review plan choices in a practical way while you confirm final legal, tax, and benefits compliance with your professional advisers. 

Sources and References