The official health insurance HRA primer | HRA 101
This post covers all the health insurance HRA basics, from reimbursement rules, how to decide between a group plan and an HRA, pros and cons, and more! You’ll be an HRA expert by the time you scroll down to the bottom of the page. Let’s jump in.
Health Insurance HRA Primer
What are HRAs and how do they work?
HRA stands for health reimbursement arrangement, and it’s based on employers reimbursing their employees for health insurance rather than buying it for them through a traditional group health plan. Employees purchase the plan of their choice on the individual health insurance market or Exchange, and they are reimbursed on their paycheck from their employer.
→ Here’s our beginners guide for HRAs for all the basics.
Is an HRA the same as health insurance?
Glad you asked!
No, it is not.
A health reimbursement arrangement is not insurance. An HRA is an arrangement between an employer and their workers that allows them to reimburse for health care expenses and premiums tax-free.
→ Here’s a handy post on how HRAs work
What is HRA in health insurance?
An HRA or health reimbursement arrangement is an employer funded health plan from which the employer reimburses the employee, tax free, for qualified premiums and medical expenses at a set dollar amount per year.
For the employees to be reimbursed, they must be enrolled in a health plan through the marketplace.
Employers are responsible for funding and managing the HRA.
Is an HRA a good plan?
Health reimbursement accounts are a superb way to provide equal health benefits and allow their employees to pay for their medical expenses for their individual needs.
For the employer, it is economically more pleasing than group health insurance.
For the employee, they get flexibility that would not be an option with a group health plan.
How do I decide between group coverage and an HRA?
For an employer, deciding between whether to arrange a Health Reimbursement Arrangement or a utilize group insurance can be troublesome.
Both ICHRAs and QSEHRAs give the employee individual options instead of a set plan they would have to be on with a set carrier. With an HRA, there is a defined contribution or allowance that each employee is reimbursed monthly. The employee pays for their premium, and then on a set date is reimbursed. Employees will have to choose a health plan from the Individual Marketplace for coverage. HRAs also can provide reimbursements for dependents as well.
With either QSHERA or ICHRA, you have an allowed 60 days to enroll after being offered your HRA or if you have a Qualified Life Event set by the government.
With Group insurance, you are offered a particular plan or plans that are pre-selected by your employer. This gives little flexibility to the employee should that carrier or plan not provide the care they need. In other words, your employer is paying for the majority of your premium and in hand selects the plan for their company.
A benefit of group insurance is the employer pays a set amount each month and the rest of the premium is deducted out of your paycheck to cover the remainder.
With group insurance, you can generally enroll any time of the year.
→ Compare Group Plans vs HRAs here.
Are there benefits to Health Reimbursement Arrangements?
There are many benefits but of the most importance is flexibility.
No two people are the same, and each individual has specific and special health care needs. The flexibility of picking your own plan allows individuals to meet those needs.
The ease of use with an HRA with the scheduled reimbursements and set amount are rewarding.
Lastly, the tax advantages make HRAs a win.
→ Check out our post on HRA account pros and cons.
Can I cash out my HRA?
No, you cannot.
Unused HRA funds are either rolled over to be used for eligible expenses or retained by your employer. Your employer decides what options they will allow. You cannot withdrawal HRA funds to use for any expense.
Your employer owns the money in the HRA.
→ Read about what happens to unused HRA account funds here.
Are HRAs portable?
No, they are not.
To clarify, if an employee leaves their job or is terminated the funds remain with the employer. Some employers do allow their terminated employees to access their HRA funds that were accrued while they were employed.
Again, this is strictly decided upon by the employer and is contingent upon which HRA is in play.
As an aside, when dealing with ICHRAs and QSEHRAs specifically, while HRAs are not portable, the health insurance plan is. That means that if an employee loses his job, he doesn’t lose his insurance. This is a good thing!
How can I use HRA funds?
Health reimbursement funds are used to cover medical premiums and eligible expenses set by your employer. Some of the expenses can include dental, vision, prescriptions, and out of pocket costs.
→ Here’s a complete list of which medical expenses are reimbursable with an HRA.
What are the limits of health reimbursement arrangements?
There are limits on health reimbursement arrangements as there are for any health plan.
You cannot use funds for costs that are not deemed necessary like teeth whitening, funeral services, or non-prescription medication.
Since the HRA is set up by the employer, the employer decides how much money goes into the plan.
An employee cannot withdraw funds first, to pay for expenses. They are only reimbursed after they are paid.
Depending on the type of HRA, there are contribution limits as well. Here’s more information on EBHRA limits and QSEHRA limits. ICHRA has no allowance limits.
→ For a deep dive on HRA compliance, check out our post on limits to HRAs.
What are the different types of HRAs?
There are four types of health insurance HRAs.
ICHRA (Individual Coverage Health Reimbursement Arrangement): This plan was first introduced in 2020. To be eligible, employees must be enrolled in individual health insurance or Medicare Parts A, B or C coverage. Employees cannot be covered by a healthcare sharing ministry plan or by a spouse’s group health insurance to enroll. Employers can design a plan to reimburse premiums and eligible expenses or only cover premiums. ICHRA is the most popular and utilized HRA.
QSHERA – Qualified Small Health Employer Reimbursement Arrangement: This plan was introduced in 2017. It is only available to employers that have fewer than 50 employees and meet certain criteria. This plan lets employers provide tax free funds to their employees to cover eligible expenses. QSHERAs cannot be offered if you offer a group health plan. Unlike ICHRA they do allow for reimbursements for sharing ministry plans or spouse’s group health insurance.
EBHRA – Excepted Benefit Health Reimbursement Arrangement: This plan was introduced in 2020. EBHRA allows employers who DO offer a group health plan to reimburse employees up to $1800 per year for out-of-pocket expenses and premiums for approved benefit coverage like dental coverage, vision, COBRA, and short-term insurance. This plan does EXCLUDE reimbursement for individual health insurance premiums. An employee can participate in an EBHRA even if they are not enrolled in the employer group health plan.
Integrated Health Reimbursement Arrangement: This HRA is exactly what the name implies. Opposite of a standalone HRA, it must be integrated with group health insurance to help employees cover out-of-pocket healthcare costs. Employees must be enrolled in a group health plan to participate in this HRA. This HRA can also be customized in several ways.
What qualifies for HRA reimbursement?
Health Reimbursement Arrangements allow for reimbursement for eligible HRA expenses. For starters, qualified health plans can be reimbursed for ICHRA and plans that meet Minimum Essential Coverage can be reimbursed for QSEHRA. These are healthcare expenses incurred by an employee or their dependents that are approved by the IRS and eligible under your specific HRA plan. These expenses may include deductibles, coinsurance, prescriptions, and other out-of-pocket healthcare expenses.
→ Learn about Health Reimbursement Arrangement Rules for ICHRA and QSEHRA.
→ Here’s a complete list of HRA eligible medical expenses that can be reimbursed with an HRA
How do you manage an HRA?
The employer who establishes the HRA has the majority of the control over. They decide on how much money goes into the plan, whether it can accumulate and roll over from one year to the next, and what the HRA funds are allowed to be used for eligible expenses.
Also engaging in a HRA company like Take Command can help manage and do all the behind the scene tasks for an employer and employee leaving little for them to worry about.
→ Learn about our HRA administration platform.
Who can offer an HRA?
Employers with any number of employees can offer individual coverage HRA. They need to have one employee that is not a self-employed owner or spouse of the self-employed owner. Health Reimbursement Arrangements are ONLY for employees and not self-employed individuals.
Still need help understand the health insurance HRA?
Need help sorting through the details of your HRA options and finding the right one for you? Our team of experts are on hand to help. Just chat with us on our website, or check out one of our helpful guides on our favorite HRAs, like our HRA Guide, our ICHRA Guide and QSEHRA Guide.
→ Check out our top 5 Health Reimbursement Arrangement rules to remember here.
→ Learn more about how health reimbursement plans work.
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