HRA healthcare refers to a health reimbursement arrangement, HRAs, or medical reimbursement plans. These are tax-advantaged benefits models that allow employers to reimburse employees for health insurance. Let's take a look at the types of HRA healthcare available and what health insurance plans integrate with each.
What is HRA healthcare?
When someone talks about HRA healthcare, they are referring to HRA health plans, HRA accounts. or health reimbursement arrangements (HRAs for short). Regardless of the terminology, HRAs are based on employers reimbursing their employees for health insurance rather than buying it for them.
Wondering if health insurance reimbursement is taxed as income?
Well, that's the best part.
HRA healthcare isn't subject to income tax, payroll tax, or employer tax.
There's also the added bonus of cost control, budget predictability, and flexibility for employers and personalization and portability for employees. No more worrying about renewal hikes and participation rates.
Gone are the days of employer-chosen, one-size-fits-all group plans. HRAs give employees the freedom to choose a plan that works best for them.
While HRAs have been around for a long time, there are two new versions that are bringing serious perks to companies of all sizes. The QSEHRA (qualified small employer HRA), designed specifically for small employers, and ICHRA (individual coverage HRA), which has no limits on company size, are the only health reimbursement arrangements that allow employers to reimburse employees tax-free for health insurance premiums and qualified medical expenses.
There are QSEHRA rules and ICHRA rules in place to ensure that employees are treated fairly, as well as stipulations for the types of health plans that are covered by an HRA.
How does HRA healthcare work?
HRA healthcare is quite simple in the way it works. First, employers determine an HRA budget that works for their company. Employees then purchase an individual health insurance plan that works best for their family, their unique needs, their prescriptions and their doctors. Employers then reimburse the employee on their paycheck for expenses incurred. Employers can choose to reimburse for medical expenses or reimburse for health insurance premiums only.
→ Learn more about how health reimbursement plans work.
Let's walk through what types of health insurance employees can purchase through their HRA healthcare plan. It varies slightly by HRA type.
QSEHRA health plans
Before an employee can participate in a QSEHRA, one must provide proof of Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g). MEC is a term that came from the Affordable Care Act.
- Major medical plans: Major Medical plans are those compliant with the Affordable Care Act (ACA) and qualify as Minimum Essential Coverage.
- Student insurance
- Your spouse’s plan (varies by QSEHRA plan): If you’re covered by your spouse’s group insurance plan there are some nuances to know regarding premium reimbursement. First, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. Second, most group plans are already paid on a pre-tax basis from your spouse’s paycheck.
- Government plans: Medicare, Medicaid, CHIP (children's health insurance programs), Tricare, and VA Care are all eligible healthcare plans and qualify as Minimum Essential Coverage.
- Dental Insurance & Vision Insurance Plans: Monthly premiums paid for individual and dental insurance plans can be reimbursed tax-free through QSEHRA. If you have dental and vision benefits through your spouse’s employer, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. In addition, if your spouse pays the premiums for your dental and insurance plans pre-tax, you can only be reimbursed for these premiums on a taxable basis.
- Limited Benefit Plans: Limited Benefit Plans are usually significantly cheaper than Major Medical plans but only provide a fixed amount of benefits (vs. unlimited benefits). These plans include short-term plans, fixed indemnity plans, accident plans, and any other plan that pays a medical benefit. As long as you also have a Minimum Essential Coverage health plan, and the limited benefit plan pays a medical benefit to the provider (not a cash benefit to you), the premiums on these plans can be reimbursed tax-free through QSEHRA.
- Sharing ministries: Faith-based sharing arrangements are permitted as long as you have a MEC plan to accompany it.
ICHRA health plans
The most important thing for employees to do to use a company ICHRA plan is to sign up for a qualified health plan, which basically means it provides coverage of essential benefits such as preventative and wellness services and emergency services, as well as limits on cost-sharing.
The following plans can be integrated with ICHRA.
- Major medical plans purchased on the exchange (Bronze, Silver, and Gold)
- Medicare (Part A+B, or Part C)
- Catastrophic Plans (limited to those under age 30 or must qualify for hardship exemption)
- Student Health Insurance
Note: sharing ministries, spouse's plan, and TRICARE do not integrate with ICHRA.
Want to learn more about HRAs?
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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.