HRA compliance is a critical piece for understanding health reimbursement arrangements. These tax-advantaged tools allow employers to reimburse their employees for insurance premiums and qualified health expenses. There are several laws that govern the world of HRAs to ensure that employees are treated fairly and that employers are covering all their bases and to avoid penalties. Here's a complete list of HRA compliance rules to remember.
Disclaimer: We always recommend that business owners consult with a CPA or lawyer to ensure that all relevant laws are followed. While there are several laws that apply to everyone, there are also state-specific regulations and other laws that may be unique to your situation. Please do your homework!
What you need to know about HRA compliance
These are the compliance rules we’ll be looking at today.
→ Compare QSEHRA vs ICHRA to see what's best for you.
Here's what to know about QSEHRA compliance:
- Reporting: The employer must report the amount of benefit the employee was eligible for on the W-2 box 12 using code FF to remain compliant.
- Written Notice: Employer must provide its eligible employees a written notice to each eligible employee at least 90 days before the beginning of each year or, for an employee who is not eligible to participate at the beginning of the year, the date on which the employee is first eligible to participate in the QSEHRA. Here's why this is important: IRS Section 6652(o): Penalty of $50 per employee (up to a maximum of $2,500 per calendar year per eligible employer) for failure to provide the written notice.
- Another major requirement that's extremely important to adhere to is HIPAA. Because small business HRAs are designed for companies with less than 50 employees, it doesn’t technically fall within many of the federal laws that affect health plans built for larger corporations. But that doesn't mean you are off the hook when it comes to HIPAA. Some parts of HIPAA still apply to small business HRAs. That's because all health plans, including those reimbursed through a QSEHRA, must observe the HIPAA Privacy Rule, regardless of the size of the company. This rule is designed to protect patients' PHI (protected health information like a bill from a doctor's visit or an MRI scan or lab results).
Here's what to know about ICHRA compliance:
- While all HRAs must be offered equally and fairly to all employees, QSEHRAs and ICHRAs achieve this differently. 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. There are some special rules, but 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.
- Employee Privacy – Leveraging an administrator provides a necessary layer of privacy. For reimbursements to be tax-free, employers have to substantiate that employees are using funds to pay for health insurance and medical expenses. However, having employees submit receipts directly creates a significant problem because information about employees’ medical expenses (including individual insurance premiums) is considered Protected Health Information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Employers asking for employee medical records is a HIPAA privacy violation.
- Record Keeping – Because the IRS requires small businesses to keep records up to 7 years, record keeping can be problematic when small paper receipts are concerned. An administrator will keep all digital records organized and secure on your behalf providing peace of mind.
- Changing Regulations – In recent years, healthcare policy consistently proves to be evolving. Therefore, as ICHRA evolves, an administrator will always be up-to-date on regulation changes.
We make it easy for you!
The Take Command HRA administration software handles compliance for you with built-in, automatic updates to ensure your bases are covered.
In fact, we have an entire team dedicated to doing just that, and we’re ready to chat! We also have a personalized enrollment team here to help your employees choose the best plan for them.
You can also check out some of our HRA administration info.
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.