HRAs have become popular in recent years, thanks in part to the freedom and control that they offer employers. But what does HRA mean? More specifically, what is an HRA plan? An HRA is a Health Reimbursement Arrangement or a type of health plan that allows employers to reimburse employees for healthcare-related expenses. While traditional group health plans leave little room for customization, HRAs help give some of that power back to employers and employees so that they can work towards solutions on a more individual level.
So how does an HRA work? These plans are relatively easy to understand and implement. Essentially, employees pay for their medical expenses and/or premiums and their employers reimburse them for the costs. HRAs differ somewhat from traditional health insurance plans in that they typically require employees to have insurance from the individual marketplace. It then reimburses them for whatever they spend on healthcare up to the limit their employer has set. Instead of trying to find a single plan that meets the needs of all employees, employers can work with employees individually to find plans that work for them. HRA explained this way can demonstrate the value of these plans to employees and employers alike.
→ Learn more about how HRAs work.
→ Is an HRA plan right for your business?
Benefits of HRAs
One of the primary advantages of HRA plans is that employers have greater control over their total benefits spend. By working with HRAs, employers can set limits based on their employees’ needs and what is best for their companies. Here are some additional benefits of HRAs from the employer end:
- The ability to set a budget
- Better control/predictability for rates
- Greater flexibility with plan design
- Tax advantages (HRA accounts aren’t subjected to payroll taxes)
- Only paying for what employees actually want and use
- Freedom from group participation requirements
In addition, HRAs offer numerous advantages to employees, including the following:
- Being able to choose plans that are tailored to their individual needs
- The privilege of keeping their pre-existing health insurance plans
- Tax benefits (i.e., no income tax paid by employees)
- Plan portability, no losing your health insurance if you change jobs or lose your job
As is the case with anything related to health insurance, it’s important that employers also consider the disadvantages of HRAs. While HRAs are a terrific alternative to other group-based health plans, they are not without their downsides. For example, if you’re an employee that’s considering switching companies, you should note that your HRA funds will not transfer with you. From the employer’s perspective, it can be difficult to obtain buy-in from employees if they’re already working with plans that they like. Change management is very important to mitigate this. What’s more, some locations are more advantaged than others in terms of the variety, quality and price of individual health insurance plans that are offered.
There are two main types of HRA plans that we’ll talk about today, and requirements vary between them. ICHRA can be offered by employers of all sizes, while QSEHRA is only available for employers with fewer than 50 full-time employees. The biggest difference is ICHRA’s ability to scale benefits across employee classes (i.e., one set amount to hourly workers and one set amount to salaried, or based on location, full time vs part time, etc).
→ Learn more about ICHRA classes
Also, while employers can offer an ICHRA to one class or type of employees and a group plan to a different type of class of employees. In other words, ICHRA can work alongside a group plan; QSEHRA cannot. In both instances, however, employers can’t offer both ICHRA/QSEHRA and group health insurance to the same classes of employees. QSEHRA doesn’t allow for class options at all, meaning that group plans are off the table. For an employee to receive an ICHRA, they must be enrolled in an individual insurance plan. With QSEHRAs, employees can either get on their own plan or take advantage of the HRA by reimbursing for their spouse’s health insurance premiums.
Understanding some of the basic HRA requirements is critical for employers that are just getting started with these types of accounts, as well as for employees that are trying to navigate the intricacies of healthcare plans. While the HRA setup process is fairly straightforward, becoming familiar with all the ins and outs of the system can take a lot more time. For this reason, it’s important that employers provide their employees with adequate resources for understanding their specific plans and what is and isn’t covered. HRA-eligible expenses typically include prescription drugs and dental and vision services, though these vary somewhat depending on whether the employer chooses to reimburse for medical expenses in addition to health insurance premiums.
Employers just starting with HRAs may struggle to design plans that work for all of their employees. What’s more, they might have a hard time getting everyone on board with the new system. Take Command’s platform makes it easy for employers to design quality, customized plans that meet the needs of each of their employees. Employers can introduce plans to their teams in a way that is easy to understand, and the platform will work alongside them as they shop for plans, answering whatever questions they may have. With Take Command, you will also receive reimbursement reports—this can help as you keep records. Best of all, the platform manages IRS compliance so that you can take a step back and focus on actually running your business.
I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!