What is the HRA Medicare relationship? Can an HRA be used for Medicare Premium Reimbursement in 2024? Can employers pay Medicare premiums for employees? These are all good questions. Since Medicare is governed by several laws, this requires a complex answer. Here's what to know about HRAs and Medicare when employers are choosing to reimburse employees for health insurance.
Medicare Premium Reimbursement: What is it?
Medicare Premium Reimbursement is a type of employee benefit that allows employers to help shoulder the costs of Medicare premiums for their employees. The relatively new way of doing this is through a tax-advantaged health reimbursement arrangement (HRA), where employers use pre-tax dollars to reimburse Medicare premiums and these funds, free from employer tax or income tax.
Can employers pay Medicare premiums for employees?
You bet! But they must go through the proper channels to do so without having to pay taxes on these funds. Technically, employers aren't paying for Medicare premiums as much as they are reimbursement their employees for expenses incurred. Health reimbursement arrangements are the vehicle through which employers can pay Medicare premiums for employees in the most optimized, tax-advantaged way.
Types of Medicare Reimbursement Arrangements
There are two types of HRAs that allow employers to reimburse employees for Medicare premiums.
The first one is for small businesses (less than 50 employees) and has an annual reimbursement limit; it's called a Qualified Small Employer HRA. The newer iteration, called the individual coverage HRA (ICHRA), allows businesses of any size to reimburse for Medicare premiums (and other health insurance premiums and sometimes medical expenses). Luckily, both HRAs work similarly with Medicare, but if you want to dig in further, you can check out our ICHRA Medicare post or our QSEHRA Medicare post.
Medicare HRA 101
For employees to participate in an HRA and receive reimbursements, they must be covered by a health plan that meets their HRA participation requirements. Major medical plans qualify, as well as Medicare.
However, the integration of Medicare with HRAs is complex, since there are existing laws guarding Medicare that require a bit more clarity.
Here's the basic Medicare HRA 101 that you should keep in mind.
To qualify for an HRA like ICHRA or QSEHRA, the employee eligible for Medicare must have coverage of Part A and Part B together or Part C - Part B by itself doesn't qualify as Minimum Essential Coverage.
When you're signing up for Medicare, there are two routes you can go. The first is "Medicare Advantage" - also called Part C. These are the newer arrangements that have all of the parts mushed together. You buy one Medicare Advantage plan and you're covered. They can be tied to an HMO or PPO network.
The second route is traditional Medicare. That's where you have A & B through the federal government and generally pair it with a drug plan (Part D) and a Supplement plan (aka "Medigap") to assist with some of the out-of-pocket medical expenses Parts A & B don't cover.
→ More on ICHRA and Medicare
HRA and Medicare Refresher
Here's a quick refresher on what the different types of Medicare are:
- Medicare part A (Hospital Insurance) Most people do not pay a premium for Part A as it is a benefit from paying Medicare taxes for a certain period of time. This is known as “premium free Part A.” If for some reason you are not covered under social security (or weren't a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. In this situation you can include the premium for reimbursement through a small business HRA.
- Medicare B (Medical Insurance) Part B covers certain doctors' services, outpatient care, medical supplies, and preventative services. Premiums you pay for Medicare B are an eligible medical expense as long as you have either Medicare A or C as well. Check the information you received from the Social Security Administration to find out your premium.
- Medicare C (Medicare Advantage) is offered by a private company that contracts with Medicare. Any premiums paid directly out of pocket to the insurance company are eligible for reimbursement through a small business HRA.
- Part D (Medicare Prescription Drug Coverage) is a supplemental insurance and premiums paid directly out of pocket are eligible for reimbursement through a small business HRA.
Pro-tip: HRAs may be used to reimburse premiums for Medicare and Medicare supplemental health insurance (Medigap), as well as other medical care expenses.
Still need help with Medicare HRA questions?
If you're still trying to sort out Medicare HRA benefits or how Medicare premium reimbursement arrangements works, our team is here to help. Just chat with our team of HRA administrators in the bottom right hand corner of our screen. We'd be happy to help!
In the meantime, give our Health Reimbursement Arrangement Guide a read or see how our HRA administrator platform could work for you. We put it together just for you!
This post was originally published in 2020 and has been updated with new information and insights for 2023.
