How HRA coverage can work for you

HRA coverage refers to the benefits of HRAs or Health Reimbursement Arrangements. They’re used by employers to allow them to reimburse their employees for health insurance. Learn more about how HRA coverage works, what is covered with an HRA, and if an HRA coverage makes sense for you as you evaluate group health insurance options for your company. 

What is HRA coverage?

HRA Coverage is a model of employer health insurance that is utilized to reimburse employees for their medical expenses. It’s also referred to as health reimbursement arrangements, health reimbursement accounts, or HRAs. Employees get reimbursed tax-free up to the maximum amount the employer will repay for health care costs for a set amount of time. Unused amounts may be rolled over to be used in subsequent year. The employer not only funds the HRA but also owns it. 

→ Check out our official guide on HRAs to learn more!

How does HRA coverage work? 

An HRA is unlike traditional health coverage through an employer. With an HRA, your employer contributes a certain amount which you can use for medical expenses, including monthly premiums and other out of pocket costs like copays and deductibles. Each HRA has its own rules which are created and set up by your employer. To participate in most HRA’s you need to be enrolled in a health plan to use the HRA funds, usually from the Marketplace. 

→ Learn more about reimbursed health insurance premiums 

→ Dive in to HRA Rules

 
What is covered with an HRA? 

Most employers set up HRAs (Health Reimbursement Arrangements) for their employees to cover their premium. Some also allow reimbursement for expenses not typically paid for by health plans – medical and pharmacy expenses paid, out-of-pocket expenses before meeting a deductible, as well as coinsurance after meeting a deductible. The employer sets the allowable amount and whether medical expenses aside from premiums are reimbursable. 

→ Here’s the complete list of medical expenses that can be reimbursed with an HRA.

 
What is not covered by an HRA? 

Again, on a health reimbursement arrangement, or HRA, the employer decides what they will cover. It could be just the premium or allowed expenses for copays for your office visits, dental, vision, pharmacy or hearing services. Unless it specifies true medical expenses, the employee would only be reimbursed the medical premium.

Other items that are not covered include gym memberships, cosmetic surgery and Botox. 

How does HRA coverage compare to a group plan? 

There are many differences between the two, but the biggest comes down to two main things:  

First with an HRA, employees pay for their premiums and are reimbursed. 
Second, the flexibility on what health plan the employee can choose. 

With a Group plan, employees pay the difference of their premium not paid by their employer which in most cases is deducted from the employee’s check. Group plans do not have any up-front costs. 

Less flexibility as the employer will pick the insurance company, and the plans that an employee can pick from. The employee will have a lesser variety to choose from since the employer decides on this beforehand. 

→ Check out our post on HRAs vs Group plans for more top notch advice!

 
How does HRA coverage benefit employees? 
 

The biggest benefit for the employee is the ability to choose what plan and network they want. Along with that, the cost they are willing to contribute instead of having less options. 

The employer gives a defined contribution, so an employee knows reimbursement allowance up front allowing them to make the choices for themselves that will fit their budget and needs.  

How do HRAs benefit an employer? 

There are many ways an HRA benefits an employer.

HRAs allow for employers to control their costs, set a budget, and avoid expensive and unexpected renewals.
An employer owns the HRA and with that, any unused money stays with the employer. 
The employer decides on the amount to be contributed and what expenses are reimbursed.  

 
FAQS: HRA Coverage Rules and Requirements

Any employer can offer an individual coverage HRA if they have one employee that is not a self-employed owner or the spouse of a self-employed owner. HRAs are not for self-employed owners. 

→ Read this post on how business owners can participate in HRAs. 

How much can an employer contribute to their employees’ costs? 

Employers have the flexibility to decide how much they want to contribute toward their employees’ individual coverage HRA for each 12-month plan year. There are no annual minimum or maximum contribution requirements. They do, however, need to verify if their HRA is affordable or not, resulting in the employee unable to use tax credits if it is not. 

→ Read up on employer HRA contributions 

→ Wondering about employers contributing different amounts to different employees? We’ve got a blog for that, too. 

How to get started with HRA coverage

An employer can set up an individual coverage HRA at any time.

But there are some boxes to check, naturally.

They include: 

The employer must supply a written notice to their new employees as soon as they are eligible to participate and to current employees 90 days (about 3 months) before the beginning of each plan year. 
Employees must have the chance to decline the individual coverage HRA annually before the plan year begins, or when they are first offered the individual coverage HRA if that happens in the middle of the plan year. 
Employees must be enrolled in individual health insurance coverage from the marketplace to utilize the HRA. 
Employers should be considerate on deciding on when to start an HRA. The employee has 60 days (about 2 months) from their eligibility date to apply and purchase a health plan.  

→ Step by step instructions for HRA setup 

What are the tax benefits for an HRA? 

Wondering if healthcare reimbursement is taxable? Individual coverage HRA reimbursements are tax free to the employee. If an employee decides to use the individual coverage HRA, no premium tax credit is allowed for the employee’s Marketplace coverage. If the individual coverage HRA offer is considered affordable for an employee, they are therefore ineligible for a premium tax credit for their Marketplace coverage. Employees who waive their unaffordable individual coverage HRA, may qualify and use a premium tax credit. 

Here are some examples of HRA tax benefits:

No income tax
No payroll tax
No employer tax

What are the tax benefits of employer sponsored group plans? 

Group health plan contributions are not generally taxed to the employee. If a qualifying employer offers SHOP (Small Business Health Options Program) coverage, the employer may be eligible for the Small Business Health Care Tax Credit. 

→ Read more about whether or not HRAs are taxed as income. 

Need help deciding which HRA coverage option is for you? 

Our team of experts is here to help. Email us at support@takecommandhealth.com or click the button below to schedule a call. 

If we’ve piqued your interest, here’s some additional light reading material for you as you decide on the best employee benefits strategy for your company.

→ What’s the right insurance for my business? 

→ Compare ICHRA vs HRA

→ Read through the official health insurance HRA primer