You might have heard of health reimbursements by now, and if you're considering them as a benefits solution and employee retention strategy for your company, it's a good idea to weigh the HRA account pros and cons before choosing one that works for you.
These tax-advantaged tools are a game-changer for employers and employees alike. They allow employers to reimburse employees for health insurance premiums and qualified medical expenses. Sounds amazing, right? They are!
Everyone loves a good list, so let’s dive right in to an HRA account pros and cons list.
HRA account: what is it?
First things first, let's clear up some confusion: an HRA is not a reimbursement account, like a health savings account (HSA) or a flexible spending account (FSA), it’s a reimbursement arrangement. There’s not an account set aside into which employees make contributions. In fact, health reimbursement arrangements are completely funded by employers.
Those funds are then used to reimburse employees when they submit receipts. The main two HRAs are the individual coverage HRA (ICHRA) and the qualified small employer HRA (QSEHRA).
HRA Account Pros and Cons
Here's what to know about HRA account pros and cons.
Pros and Cons of Health Reimbursement Arrangements
Let's start with the advantages of HRAs.
Pros:
- Great for businesses of any size: ICHRAs work with businesses of any size, while the QSEHRA is for businesses with 50 employees or less
- Employees can choose their own providers and plans
- Reimbursements for ICHRA can be offered to employees at different rates based on job-based criteria like full-time/part-time, geographical location, etc. QSEHRA has to be offered equally across all types of employees but can be scaled due to family size or age.
- Depending on the HRA design, employees can use them to pay for insurance premiums, medical expenses, or both
- When a company offers a QSEHRA or an ICHRA plan, employees are eligible for a special enrollment period, which means they can shop a major medical plan on the individual market at that time (and outside of the typical open enrollment timeframe)
- Unused HRA account funds can rollover at the discretion of the employer annually; otherwise the funds stay with the employer. They also rollover month over month.
Cons:
- Funds are not transportable; they stay with the employer if the employee leaves the company. (But the good news is that the employee keeps their health plan!)
- Not always possible to combine with a group plan. If your team has a group plan that they really like, they might be hesitant to give up that trusted group plan.
- Depending on the HRA, there may be contribution limits (see 2023 QSHERA limits), which might impede an employer from giving the generous amount they actually want.
- If individual insurance markets in your area are weak, your employees won't have as many options as they might like.
- Sharing ministry plans are not eligible for ICHRA but recently proposed regulations will clear up some grey area when it comes to sharing ministries and QSEHRAs. While they won't be considered health insurance, they can be reimbursed as a medical expense. This is good news!
Can’t get enough of these HRA account pros and cons?
We’ve broken down the two main types of HRAs (ICHRA and QSEHRA) available in 2023 and compared them here. More about the ICHRA is here. We compare the QSEHRA to group plans here.
→ Learn about Health Reimbursement Arrangement Rules for ICHRA and QSEHRA.
→ Compare HRA vs HSA
→ Compare HRAs vs Group Plans.
→ Learn more about our HRA administrator platform.
This post was originally published in 2020 and has been updated with new information and insights for 2023.
