No. IRS Notice 2017-67 is explicit.
There is widespread confusion about whether a Qualified Small Employer HRA (QSEHRA) can reimburse employees without health insurance, with the reimbursement simply treated as taxable income. As of 2026, this confusion still persists.
That claim is wrong.
Under current QSEHRA reimbursement rules, an employee must have Minimum Essential Coverage (MEC) before any QSEHRA reimbursement may be made. This requirement is a prerequisite to reimbursement — not a tax-treatment decision.
QSEHRA Reimbursement Rules: Minimum Essential Coverage Required
Under IRS Notice 2017-67, QSEHRA reimbursement rules require that an employee substantiate both of the following before reimbursement occurs:
- The expense is a qualified medical expense, and
- The employee had Minimum Essential Coverage (MEC) for the month in which the expense was incurred
If MEC is not substantiated, the expense may not be reimbursed under a QSEHRA.
This is a gatekeeping requirement that applies before any QSEHRA reimbursement is issued.
Why “Taxable QSEHRA Reimbursement Without Insurance” Is a Myth
You may see explanations claiming that a QSEHRA can reimburse employees without health insurance and simply treat the payment as taxable income.
That framing is incorrect because it ignores the IRS’s substantiation requirements.
- QSEHRA reimbursements are not optional payments
- Minimum Essential Coverage is not a post-payment tax election
- Without MEC substantiation, reimbursement should not occur at all
Compliant QSEHRA administration requires MEC confirmation before reimbursement is approved.
What Counts as QSEHRA Minimum Essential Coverage
QSEHRA Minimum Essential Coverage includes, among other forms of qualifying coverage:
- Employer-sponsored group health coverage (including a spouse’s plan)
- Individual ACA-compliant health insurance
- Medicare
- Medicaid or CHIP (in most cases)
Employees do not need to purchase individual insurance to participate in a QSEHRA, but they must have qualifying coverage in place to receive reimbursements.
QSEHRA Eligibility Requirements Under IRS Notice 2017-67
Understanding QSEHRA eligibility requirements is critical.
Eligibility for reimbursement depends on coverage first, reimbursement second. An employee who lacks MEC for a given month is not eligible to receive a QSEHRA reimbursement for expenses incurred in that month.
This is not discretionary and cannot be overridden by treating payments as taxable wages.
The Correct Rule
- A QSEHRA requires Minimum Essential Coverage
- MEC must be substantiated before reimbursement
- Reimbursement without MEC is not permitted
- This is a statutory requirement under IRS Notice 2017-67
Any explanation that suggests otherwise is incorrect.
Bottom Line
When administering or participating in a QSEHRA, the controlling authority is the IRS — not secondary commentary.
IRS Notice 2017-67 is explicit: no MEC, no QSEHRA reimbursement.
