Are HRAs health insurance? Let's get right to the answer...no. In general, HRA is an umbrella term for any legal arrangement between an employer and their employees to reimburse for medical expenses and/or insurance premiums on a tax-free basis. Under this arrangement, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses.
There are several types of HRAs, but there are currently only two types that allow for employers to reimburse employees tax-free for qualified individual insurance premiums:
- QSEHRA (Qualified Small Employer HRA for companies with less than 50 full-time equivalent employees)
- ICHRA (Individual Coverage HRA for companies of any size with no reimbursement limits)
How HRAs work
- An employer begins by choosing the HRA that best fits their company (QSEHRA or ICHRA). At a very high level, these two HRAs behave the same, but they are each designed to meet specific needs.
- With an HRA, employees secure their own individual insurance and are then reimbursed by their employer.
- Employees at this point will then secure their own individual insurance (either on the marketplace or directly with a carrier) that best fits their needs. If this is the first time an employer is offering benefits, some employees may already have individual insurance that qualifies, and others may even be eligible to get reimbursed for their portion of their spouse’s insurance.
- Employees are then allowed to begin submitting claims to their employers to get reimbursed up to the established limits.
What health insurance plans work with HRAs?
Minimum Essential Coverage and QSEHRA
Before an employee can participate in a QSEHRA, one must provide proof of Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g). MEC is a term that came from the Affordable Care Act.
- Major medical plans: Major Medical plans are those compliant with the Affordable Care Act (ACA) and qualify as Minimum Essential Coverage. If you purchased your plan through Healthcare.gov or your state’s public marketplace, your plan is a Major Medical plan, and your reimbursement through QSEHRA will be tax-free.
- Student insurance
- Your spouse’s plan (varies by QSEHRA plan): If you’re covered by your spouse’s group insurance plan there are some nuances to know regarding premium reimbursement. First, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. Second, most group plans are already paid on a pre-tax basis from your spouse’s paycheck. This is great! However, the IRS doesn’t want you to “double dip” and also get a pre-tax QSEHRA reimbursement, so your QSEHRA claim for your premium may be paid on a taxable basis (plan depending). If you can verify that your premium is paid post-tax by your spouse (very rare), then you can still be reimbursed tax-free through QSEHRA!
- Government plans: Medicare, Medicaid, CHIP (children's health insurance programs), Tricare, and VA Care are all eligible healthcare plans and qualify as Minimum Essential Coverage. If you are on one of these plans and pay a monthly premium out of pocket, those can be reimbursed through QSEHRA tax-free.
- Dental Insurance & Vision Insurance Plans: Monthly premiums paid for individual and dental insurance plans can be reimbursed tax-free through QSEHRA. If you have dental and vision benefits through your spouse’s employer, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. In addition, if your spouse pays the premiums for your dental and insurance plans pre-tax, you can only be reimbursed for these premiums on a taxable basis.
- Limited Benefit Plans: Limited Benefit Plans are usually significantly cheaper than Major Medical plans but only provide a fixed amount of benefits (vs. unlimited benefits). These plans include short-term plans, fixed indemnity plans, accident plans, and any other plan that pays a medical benefit. As long as you also have a Minimum Essential Coverage health plan, and the limited benefit plan pays a medical benefit to the provider (not a cash benefit to you), the premiums on these plans can be reimbursed tax-free through QSEHRA.
This post goes into even more detail about the plans that do not meet MEC and/or are not compatible with QSEHRA.
Qualified health plans and ICHRA
The most important thing for employees to do to use a company ICHRA plan is to sign up for a qualified health plan, which basically means it provides coverage of essential benefits such as preventative and wellness services and emergency services, as well as limits on cost-sharing.
The following plans can be integrated with ICHRA.
- Major medical plans purchased on the exchange (Bronze, Silver, and Gold)
- Medicare (Part A+B, or Part C)
- Catastrophic Plans (limited to those under age 30 or must qualify for hardship exemption)
- Student Health Insurance
If you’re an employee looking for a qualified ICHRA plan, you can shop and compare plans directly at Take Command Health. For the QSEHRA, check out our comprehensive QSEHRA guide. We wrote this guide about what can be reimbursed, ensuring that you get the most benefits out of the QSEHRA. Employers interested in structuring coverage or comparing options can talk with an expert and get started with a custom design in minutes.