On the face of it, health reimbursement arrangements (HRAs), are fairly simple — an employer picks an HRA option and sets a budget. When an employee pays for a premium or has a medical bill for a procedure, prescription, or even a co-pay, the employer reimburses them. But HRA account rules can be a little confusing. The two main types of HRAs (Qualified Small Employer HRAs and Individual Coverage HRAs) have much in common, but also have HRA rules of their own. Let’s look at those today.
Standalone HRAs like QSEHRAs can help businesses with fewer than 50 employees who do not have an option of a group plan pay for benefits tax-free.
Keep in mind the following HRA rules for small businesses:
- Eligibility rules for companies: To offer a QSEHRA, the business must be a “small employer” in the eyes of the IRS with less than 50 full-time employees. Additionally, the business can't have a traditional group health plan. This makes sense—the purpose of a QSEHRA is to reimburse for individual health insurance, so a business cannot have a group health plan at the same time. This restriction does not apply to non-health group benefits like life insurance or disability insurance.
- Eligibility rules for employees: Employees must be covered by a plan that provides Minimum Essential Coverage. MEC plans include major medical plans, Medicare, Medicaid, etc. Faith-based sharing ministries, short-term plans, and indemnity plans are not MEC but may be able to be supplemented with a MEC offering in order to qualify. An employee can also be covered by a spouse's plan or parent's plan. The employee must also be an actual employee; 99% of the time that means they are W-2 employees.
- Reimbursement rate rules: Reimbursement rates for 2021 are limited to $5,300 for individuals and $10,700 for families.
- Special enrollment periods: As of January 2020, employers who decide to offer a QSEHRA now prompt an open enrollment period, which gives employees 60 days to purchase qualifying plans. This is a big improvement and makes finding a plan easier for employees!
- Eligibility rules for owners: Wondering if you can participate in your own QSEHRA as an owner? It depends on how your company is set up. We cover all of that in this post!
Integrated HRAs like ICHRAs work with a traditional group health insurance plan to reimburse out-of-pocket medical expenses, and are typically coupled with co-pays, co-insurance and deductibles.
Here are a few ICHRA rules to remember.
- Size rules: Any size of company is eligible to offer an ICHRA.
- Employee eligibility rules: Employees must maintain Minimum Essential Coverage (MEC) with a qualified health plan.
- ICHRA class rules: Employees in different classes (think geographic location, seasonal, part-time, abroad) can be offered different levels of benefits.
- Reimbursement rate rules: There are no maximum or minimum limits for monthly reimbursement rates.
- Start date rules: Employers can choose to offer an ICHRA any time throughout the year (not just during open enrollment!). Switching from a group plan to an ICHRA is super easy.
- Special enrollment period: Employees have a 60 day window to enroll in an individual health plan once the ICHRA becomes available, as it triggers a special enrollment period). This makes finding an individual plan that meets MEC outside of open enrollment much easier for employees.
- Employer mandate rules: ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV)
- Rules surrounding integrating with group plans: An ICHRA can be offered with a traditional group plan as long as both options aren't being offered to the same class of employees. Note: this does not preclude group dental and vision like QSEHRA.
- Affordability rules: If ICHRA is deemed "unaffordable," employees can choose between using Premium Tax Credits or the ICHRA. If it is deemed affordable, they cannot opt out and receive a premium tax credit. (Confused? We built an Affordability Calculator to help.)
- Reimbursement rules: ICHRA can be used to reimburse for premiums and qualified medical expenses, including excepted benefits like dental, vision.
Take Command Health can help clear up HRA rules
Chat with our team with any questions you may have about these new, tax-friendly benefits or check out our new ICHRA Guide for more information on its background, setup process, requirements, and rules. We’ve also created an ICHRA affordability calculator and our ICHRA administration tool is one of a kind!
We've also built a couple of excellent resources to help you better understand what QSEHRA can do for you. Check out our QSEHRA tax savings calculator to see how it affects your bottom line, look through our QSEHRA reimbursement guide to see what can be reimbursed, or use your QSEHRA plan designer tool to visualize what your plan would look like and how it would work.