HRAs

With an HRA, an organization offers employees a monthly allowance, and employees pay for the medical coverage and expenses that best fits their needs. The employer then reimburses the employee up to their allowance.

All HRAs follow a simple, four-step process: 

1. The organization chooses an allowance

2. Employees buy what they want

3. Employees submit proof of incurred expenses

4. The organization approves and pays the reimbursement.

How a qualified small employer HRA (QSEHRA) works

In December 2016, Congress made a formal exception on HRAs with the passage of the 21st Century Cures Act.

The law created the qualified small employer health reimbursement arrangement (QSEHRA), a personalized health benefit for organizations with fewer than 50 employees.

• The employer sets an allowance amount. The organization chooses a monthly benefit allowance of tax-free money to offer each employee. In 2020, annual employee allowances are limited to $5,250 for self-only employees and $10,600 for employees with a family. These allowances must be offered to all eligible employees, and an organization can’t offer different allowance amounts to different employees unless those differences are based on family status. Learn more about whether an employer has to offer health insurance to all employees. Additionally, QSEHRA participants must coordinate their allowance with any premium tax credits.
• Employees buy what fits their personal needs. They can be reimbursed for any item listed in IRS publication 502, though the organization may choose to limit this list.
• Employees submit proof of purchase. After the employee incurs an eligible expense, they submit proof of the expense to their organization. This documentation must include a description of the product or service, the cost of the expense, and the date the employee incurred the expense.
• The employer reimburses employees. The organization reviews the employee’s submission and, if it qualifies, reimburses the employee from the monthly allowance for that benefit. If it doesn’t qualify, the organization must follow a declined claims and appeals process outlined in their HRA plan documents.
• A QSEHRA is ideal for organizations with fewer than 50 employees who want a health benefit that is easy to deploy and manage, and who don’t have a need or a budget for more than the maximum contribution limit.

How an individual coverage HRA (ICHRA) works

• The employer sets an allowance amount. Unlike QSEHRA there are no limits on the allowance amount employers can set. In addition, employers can set different allowance amounts according to job classifications, like Full-time, Part-time, Salaried, Hourly, or where employees are located. Employers can also offer an ICHRA alongside a group health insurance plan, as long as the class of employee offered an ICHRA is not also offered group health insurance.
• Employees buy what fits their personal needs. Employees using an ICHRA are required to have MEC. If they already do (for example, they have an existing individual plan or are covered under a spouse’s group plan), they can be reimbursed for all expenses, including premium costs, IRS publication 502. If they do not, they must purchase a plan through the healthcare.gov site or their state’s individual insurance exchange. Employees offered an ICHRA lose eligibility for premium tax credits if their employer offers an allowance that is considered affordable according to IRS regulations.
• Employees submit proof of purchase. After the employee incurs an eligible expense, they submit proof of the expense to their organization. This documentation must include a description of the product or service, the cost of the expense, and the date the employee incurred the expense.
• The employer reimburses employees. The organization reviews the employee’s submission and, if it qualifies, reimburses the employee from the monthly allowance for that benefit.

The ICHRA is ideal for organizations of any size who want the flexibility to offer different benefits to different classes of employees who might also want to offer a greater allowance than the QSEHRA allows.

How a group coverage HRA works

The group coverage HRA (GCHRA) enables employers to supplement a group health insurance plan. These HRAs are available to organizations of all sizes and are often offered alongside a high-deductible group policy.

• The employer sets an allowance amount. The organization chooses a monthly benefit allowance of tax-free money to offer each employee. The organization can choose to offer different allowance amounts to different employees based on bona fide job criteria. Eligibility is limited to employees also participating in the organization’s group health insurance policy.
• Employees buy what fits their personal needs. Employees can be reimbursed for any item listed in IRS publication 502, though the employer may choose to limit this list if it wants to. Note that employees in a GHCRA are not reimbursed for insurance premiums, however, they will still receive the tax advantages on money spent toward their group health insurance plan.
• Employees submit proof of purchase. After the employee incurs an eligible expense, they submit proof of the expense to their organization. This documentation must include a description of the product or service, the cost of the expense, and the date the employee incurred the expense.
• The employer reimburses employees. The organization reviews the employee’s submission and, if it qualifies, reimburses the employee from the monthly allowance for that expense. If it doesn’t qualify, the organization must follow a declined claims and appeals process outlined in their HRA plan documents.
• A GCHRA is ideal for employers who have an existing group health insurance plan they want to supplement, either to take the bite out of a high-deductible plan, or to enhance a feature-rich health benefit package.

Which HRA is right for you? It really depends on your needs. Following are some rough guidelines:

• QSEHRA. Use a QSEHRA if you are looking for simple to deploy and manage, one-size-fits-all health benefit.
• ICHRA. Use an ICHRA if you want the flexibility to offer different health benefits to different classes of employees and if you want to make sure your employees have minimum essential coverage.
• GCHRA. Use a GCHRA if you want to supplement an existing group health insurance plan by reimbursing employees for out-of-pocket medical expenses.

Please feel free to reach out to us if you would like more information on HRAs or have any questions.