A Health Reimbursement Arrangement (HRA) is a type of US employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses. These plans are integrated into qualified employer sponsored group health insurance plans to help employees pay for qualified health expenses that aren’t covered by their health plans. HRAs are flexible and provide employers with many options to craft a system that works for their business.
How does an HRA work?
An HRA is a funding account that employers place a fixed amount of money into every year. The account is only funded by contributions by the employer and is available to employees at the beginning of the year. The funds can only be used for deductibles of qualifying medical expenses that are not covered by an employee’s health plan.
The IRS determines what medical expenses can legally be covered by an HRA, and employers will determine what specific expenses are covered by the company’s HRA.
Employers set up and manage the HRA account, and employees are able to use money from this account for qualifying medical expenses. HRA funds can cover expenses toward surgeries, X-rays, or visiting the doctor when sick. Employers will also determine who pays first. For example, an employee may need to pay $500 of their deductible before HRA funds will be paid out.
Priority Health’s PriorityHRA processes claims automatically in three simple steps:
- Employee experiences a qualifying medical expense.
- Provider bills the insurance company.
- The insurance company applies the services to the HRA and the health plan and mails a check to the provider if necessary. No paperwork is necessary to make a claim.
Benefits of HRAs
HRAs include many benefits for both employers and employees. For employers looking at strategies to manage the cost of their plan, HRAs provide the ability to contribute a fixed amount to employees, helping them access services while controlling expenses. Increased flexibility in the plan allows employers to design the HRA to best fit the company’s needs, and choose how much to contribute, what expenses are covered and when the HRA kicks in. Contributions to HRAs are also 100% tax deductible. With PriorityHRA, employers have added benefits like receiving regular reports on HRA balances.
Benefits of HRAs for employees include reimbursement or coverage for out of pocket medical costs, and not having to claim income tax deductions on HRA covered costs. PriorityHRA also has employee perks like no paperwork required to use your HRA funds, payments sent directly to health care providers, and easy tracking and planning of HRA and plan activity through an online account.
HRA vs. HSA, what’s the difference?
HRAs and Health Savings Accounts (HSAs) are similar because they have a list of eligible medical expenses they can be used for and unused funds of these accounts roll over if they are not withdrawn.
Though HRAs and HSAs have similar goals of helping employees save money on health care expenses, there are some key differences between these fund accounts. The biggest difference is that an HRA is set up by the employer on behalf of the employee, while an HSA is set up by employees themselves. Employers are the only ones contributing to an HRA, while both employers and employees can contribute to an HSA. An HRA also has no mandatory requirement to be enrolled, but an employee must have a high deductible health plan to take out an HSA.
What is an Individual Coverage HRA (ICHRA)?
Individual Coverage HRAs, or ICHRAs, are a type of HRA that can be used to purchase individual health coverage and/or qualified medical expenses. ICHRAs differ from traditional HRAs most notably because they can reimburse individual insurance premiums and are able to be used with individual health insurance plans instead of employer sponsored group health insurance plans. For example, if an employer decides not to offer a group health insurance coverage, they can instead provide an ICHRA to reimburse employees for selecting a plan on the individual marketplace.
Benefits of an ICHRA include the flexibility and tax efficiency these plans offer. Employees are able to tailor the fund to best meet their health care needs while still meeting standards for Minimum Essential Coverage, Minimum Value, and Affordability. ICHRAs also help employees pay for their individual health insurance premiums tax free, a feature that is attractive to many employees and can help employers with talent recruitment.
However, the individual health insurance plans ICHRAs are paired with can have very narrow networks compared to group plans which may make it harder to find providers in network. Individual health insurance plans also tend to have higher premiums than group plans.
HRA and ICHRA regulations
HRAs must be paid for solely by the employer and cannot be funded through employee salary deductions and can only reimburse employees for their effective dates in the HRA plan. HRAs can only be applied towards qualified medical expenses as defined by the IRS and reimbursements from the HRA should be excluded from the employee’s gross income. They must also be compliant with the employer mandate, which states the HRA covers 60% of services and is affordable (as defined by the IRS) and offers health coverage to 95% of eligible employees.
HRAs can be offered to a company’s entire workforce or to specific classes, such as full-time employees or part-time employees. These employee segments must be at least 10 employees for employers with less than 100 employees or 20 employees for employers with greater than 200 employees. There is no maximum or minimum dollar amount requirement for an HRA and employers can set their contribution. Higher amounts may be provided to employees with family coverage.
ICHRAs may be offered by employers of any size. The greatest regulation for ICHRA is that employees’ individual plans must meet requirement of minimum essential coverage. Employers are also able to offer different benefits based on employee class, meaning full-time and part-time employees could have different benefits.
How do I set up an HRA?
To begin setting up an HRA for your business, contact your agent to discuss options and see what the best fit is for your company. In the meantime, you can explore HRA plans like PriorityHRA, an HRA that provides all the benefits of offering an HRA without all the maintenance and administration.
Be sure to discuss HRA and ICHRA regulations with a benefits lawyer before making changes to your health plan. For more information about HRAs and insurance options for your business, go to Priority Health’s website.
