Wondering what a health reimbursement account is? If you are looking to better understand HRAs, it's important to know that it's actually called a health reimbursement arrangement. It's a common mistake and we are here to clear up any confusion about this awesome tax-advantaged tool that's shaking up the employer benefits market.
Here's what to know.
Let's cut to the chase: HRA refers to a health reimbursement arrangement, not a health reimbursement account.
In an industry that is filled to the brim with confusing acronyms, this is a mistake a lot of folks make.
An HRA is not a bank account. This can be a little confusing at first, but it’s actually much simpler. Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, “HRA” stands for Health Reimbursement Arrangement.
HRAs are a hot topic right now among benefits consultants and accountants as they advise their clients on the best benefits solutions for them, especially now that there are two new HRAs on the market as of January - the ICHRA and the EBHRA.
What HRAs mean for employees
If you're an employee and your boss is offering you an HRA, it means that they are going to reimburse you for health insurance costs and possibly medical expenses depending on the type of HRA they have chosen. This is great news because it means you can shop for the best plan that fits your needs (you know you want to keep your doctor in network!), and you submit receipts and get reimbursed. This is an alternative to a group plan and means personalized plan choice and portability for you.
Pro tip: Before you sign on the dotted line for a new health plan, make sure you study up on HRA compliant plans.
What health reimbursement arrangements mean for employers
A health reimbursement arrangement allows employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want.
The mechanics of an HRA are pretty simple. You choose a monthly budget that works for you, your employee signs up for a health plan that works for them, then you outsource the rest to an HRA administrator so you don't have to worry about things like compliance or forms during tax time.
There are several types of HRAs, but our favorites are the more recent options. Choosing which one works for you depends on the makeup of your company.
QSEHRAs, or Qualified Small Employer Health Reimbursement Arrangements, have been around since 2017. They are HRAs designed specifically for small businesses and are limited to businesses with 50 employees or less. QSEHRA contribution limits for 2020 are $5,250 a year for an individual or $10,600 for a family per year.
ICHRAs, or Individual Coverage HRAs, represents a “super-charged” version of QSEHRA with no contribution limits and greater design flexibility with their hallmark ICHRA class function that will appeal to more employers. ICHRA expands the benefits of HRAs to a larger pool of companies.
We often get asked if business owners have to pre-fund their account or send money to our account so we can distribute it to their employees. The answer is no to both questions—the money stays with the employer until an employee makes a claim that qualifies for reimbursement. If employees never make claims or don’t claim the full amount, the employer keeps it all!
What HRAs mean for the market
We believe that HRAs empower employees (say that ten times fast) to be their own advocate when it comes to their healthcare spend. That's an important piece of the puzzle as we try to fix the high costs of healthcare.
If you think an HRA might work for your business, don't hesitate to reach out to our HRA experts. We are around to chat on our website and would be happy to help you.