Looking for the top 5 health reimbursement arrangement rules to remember? We'll walk you through them. Health reimbursement arrangements are fairly simple — an employer picks an HRA option, sets a budget, then the employer reimburses an employee for an insurance premium, medical bills, or for a procedure. However, the HRA rules for employers and regulations surrounding HRAs can be a little confusing. We’ll break it down for you.
But first, an HRA refresher
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.
→ Wondering what happens to unused HRA funds?
→ Learn about the HRA IRS rules.
→ Learn about Health Reimbursement Arrangement Rules for ICHRA and QSEHRA.
Employers and employees need to be aware that some HRA account rules and guidelines can vary depending on the type of HRA provided.
QSEHRA - the qualified small employer HRA works for businesses with less than 50 employees that do not offer a group plan. The QSEHRA has a monthly contribution limit, which typically increases from year to year.
Here are 5 rules specific to QSEHRA!
ICHRA - the individual coverage HRA allows for tax-free reimbursement of benefits for any size business and for any amount (no contribution limits!).
Here are 10 ICHRA rules to remember!
5 Health Reimbursement Arrangement Rules to Remember
- Owner eligibility: Whether or not self-employed owners can participate in an HRA depends on how the plan and business are set up! In order for a business owner to participate in a QSEHRA, they must be considered an employee of the business. Since C-corps are legally separate from their owners, a business owner and dependents can utilize the QSEHRA. Since S-corp owners are not employees, they typically cannot participate in a QSEHRA. Partners and sole proprietors can participate under certain loopholes — if a partner or sole proprietor’s spouse is a W-2 employee, then the partner or sole proprietor can participate in the HRA as a dependent of the spouse.
- Employee eligibility: HRAs must be offered equally and fairly to all employees, but the way QSEHRA and ICHRA approach this is different. While QSEHRA eligibility can only be scaled based on family size or age, ICHRA offers a greater deal of efficiency with its class feature, which allows employers to divide employees up into an almost limitless amount of custom classes that receive varying rates of reimbursement. Employers can offer ICHRAs to all eligible employees, or to only certain classes of employees. In general, individual classes are determined by job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One rule that stands out here is that while ICHRA can be offered to one class and a group plan offered to another, an individual cannot be offered both.
- Eligible/qualified plans: The point of the HRA is to afford flexibility to both employers and employees; however, one type of choice is off-limits — an employer cannot offer the same class of employees a choice between a traditional group health plan and an ICHRA. If an employer does want to provide group plan coverage to one type of employee and an ICHRA to another type, there are some size requirements for certain classes of employees. Employers also need to make sure that plans meet basic coverage requirements: There are specific rules for qualified health plans that integrate with ICHRAs and minimum essential coverage plans for QSEHRA.
- Employee usability: In order to use the individual coverage HRA amount, employees must be enrolled in individual health insurance coverage — either by purchasing a plan through the ACA marketplace or through a private insurance company, or through Medicare.
- Management/privacy: Employers are strongly advised not to manage their own HRA plan, due to federal privacy requirements. Of course, employers have to verify that employees are using funds to pay for health insurance and medical expenses — but having employees submit receipts risks fines for HIPAA violations. It’s best for employers to place administration of plans into someone else’s hands. Luckily, there are HRA administration tools available.
→ Deep dive into common HRA compliance issues.
Have more questions about HRA rules?
Take Command is a recognized leader in QSEHRA administration and small business HRA tax strategy. We were at the forefront of the new ICHRA administration regulations and responded with our own comprehensive and exclusive research to the proposed regulations. If it’s not obvious, our team is passionate about HRAs and the impact they can have on small business.
Is your company or client going to be a part of this exciting change? Chat with our team with any questions you may have about these new, tax-friendly benefits!
In the meantime, check out our new HRA Guide! It's chocked full of helpful information.
A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.