The ever-evolving landscape of healthcare benefits has led employers to seek innovative solutions that control costs and provide employees with valuable healthcare options. One such solution that has gained popularity is the Health Reimbursement Arrangement (HRA). In this blog, we will explore the pros and cons of using HRAs for medical expense reimbursement and guide employers to make an informed decision about whether HRAs are the right choice for their organization.
Understanding Health Reimbursement Arrangements
Health Reimbursement Arrangements are employer-funded accounts designed to reimburse employees for qualified medical expenses, including health insurance premiums.
HRAs offer tax advantages for employers and employees, as contributions and reimbursements are tax-free.
They provide a degree of flexibility and customization, allowing employers to tailor their HRA plans to meet the unique needs of their workforce.
Types of HRAs
There are two primary types of HRAs, each catering to different employer and employee needs:
- Qualified Small Employer HRA (QSEHRA): Designed for small businesses with fewer than 50 full-time equivalent employees and no group health plan offered to employees.
- Individual Coverage HRA (ICHRA): Available to employers of all sizes, this HRA is designed to integrate with individual health insurance coverage.
How HRAs Work
Employers contribute a predetermined amount of money to each employee's HRA account. Employees can then use these funds to pay for qualified medical expenses, submitting proof of their expenses to receive tax-free reimbursements. Depending on the HRA type and plan design, unused funds may roll over from year to year or be forfeited at the end of the plan year.
Understanding Eligible Expenses for HRA Reimbursement
Q: What can HRA funds be used for?
A: HRA funds can be used to reimburse employees for eligible medical expenses. Eligible expenses may include deductibles, copayments, coinsurance, prescription drugs, and other healthcare expenses not covered by insurance.
Q: Can HRA funds be used to pay for insurance premiums?
A: In certain cases, HRA funds can be used to pay insurance premiums. For example, HRA funds can be used to pay COBRA premiums or premiums for individual health insurance policies purchased through the marketplace.
Q: Can HRA funds be used for over-the-counter (OTC) medications?
A: Yes, as of January 1, 2020, HRA funds can reimburse the cost of OTC medications without a prescription. This change was made as part of the CARES Act.
Q: Can HRA funds be used to pay for health club memberships or fitness equipment?
A: Generally, HRA funds can’t be used to pay for health club memberships or fitness equipment. However, certain types of HRAs, such as wellness HRAs, may allow for reimbursements for some fitness-related expenses.
Q: Can HRA funds be used to pay for cosmetic procedures?
A: No, HRA funds cannot be used to pay for cosmetic procedures that are not medically necessary. However, certain cosmetic procedures, such as reconstructive surgery after a mastectomy, may be eligible for reimbursement.
Q: Can HRA funds be used to pay for alternative therapies, such as acupuncture or chiropractic care?
A: Yes, in many cases, HRA funds can be used to pay for alternative therapies that are considered medically necessary. However, it is important to check with the specific HRA plan to see what alternative therapies are covered.
Q: Can HRA funds be used to pay for medical expenses incurred by family members?
A: Yes, HRA funds can reimburse medical expenses incurred by the employee, their spouse, and their dependents.
Pros of Reimbursing Medical Expenses through HRAs
- Cost control and predictability: Reimbursing for medical expenses through a company HRA allows employers to set annual contribution limits for each employee, providing better control over healthcare costs and improving budget predictability.
- Tax benefits: Employer contributions and employee reimbursements through an HRA are tax-free, resulting in cost savings for the organization and employees while promoting more cost-effective healthcare spending.
- Customization and flexibility: HRAs allow employers to customize their plans by defining eligible expenses, setting contribution limits, and establishing plan rules tailored to their organization's needs and workforce preferences. For example, offering medical expenses is a way to make the HRA accessible and fair for all, especially if the employer chooses not to reimburse taxable premiums.
- Increased employee satisfaction: Employers are committed to supporting their employees' healthcare needs by offering an HRA. This commitment can increase employee satisfaction, as employees feel valued and supported in managing their healthcare costs.
- Attracting and retaining top talent: A competitive HRA can serve as an attractive benefit for job seekers and help retain valued employees. A comprehensive benefits package, including an HRA, can set an organization apart in a competitive job market.
- Adaptable to changing healthcare landscape: HRAs allow employers to adapt their plans to changing healthcare regulations and market trends. This adaptability ensures that the organization can continue to offer valuable healthcare benefits while staying compliant with ever-changing regulations.
- Promoting employee wellness: Employers can encourage employees to prioritize their health and well-being by reimbursing medical expenses through an HRA. This focus on wellness can lead to a healthier and more productive workforce, ultimately benefiting the organization.
Cons of Reimbursing Medical Expenses through HRAs
- Administrative burden: Implementing and managing an HRA can be time-consuming and require additional resources, such as tracking contributions, processing reimbursements, and ensuring regulatory compliance, which some organizations may find challenging. Currently, the Take Command HRA administration software doesn’t offer autopay for medical reimbursements, though we expect to launch this feature very soon!
- Limited employee awareness: Employees may not fully understand the benefits of HRAs or how to use them. For example, if they miss a critical piece of data required for proof, they may have to upload multiple times for one reimbursement. So if they don’t understand a qualified medical expense, they could become frustrated when certain things aren’t reimbursed.
- Potential for unused funds: Depending on the HRA plan design, employees may not use all their allocated funds, leading to potential waste or issues with fund rollovers. Employers may be concerned about the financial implications of unused funds and prefer to invest in other benefit offerings.
- Coordination with other health accounts: Navigating the rules and restrictions around coordinating HRAs with other health accounts, such as Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), can be complex and may limit employee participation, making employers hesitant to implement an HRA.
- Employee eligibility requirements: Ensuring employees meet the eligibility requirements for certain types of HRAs can create additional administrative challenges, which some employers may find burdensome.
- Regulatory compliance: Employers must stay informed about ever-changing HRA regulations and ensure their plans comply with federal and state laws. The responsibility of staying up-to-date with regulations and adjusting plans accordingly may deter some organizations from implementing an HRA.
Remember: Take Command alleviates all of these perceived cons to make HRA implementation streamlined and easy for your clients.
Assessing the viability of an HRA for your client's healthcare budget and objectives.
Deciding whether to implement a Health Reimbursement Arrangement as part of your organization's benefits package requires careful consideration of the pros, cons, and unique circumstances. By evaluating the potential impact of HRAs on your client’s organization, you can make an informed decision that best meets the needs of employees and aligns with the company's objectives.
Assess your client’s healthcare budget and objectives
Determine if the potential cost savings and increased employee satisfaction align with the organization's goals and financial constraints.
Evaluate employee needs and preferences
This insight can help your client determine if an HRA would be a valuable addition to their benefits package and if it would effectively address employees' healthcare concerns.
Consider the administrative capacity of your client’s business
Evaluate your client’s capacity to handle the administrative responsibilities of implementing and managing an HRA. Consider whether you have the resources available to administer the HRA effectively or if you would need to partner with a third-party administrator to manage the program.
Analyzing the compatibility of HRAs with existing health benefits
Review your existing health benefits offerings to determine if an HRA would complement or conflict with your current benefits. Consult with experts to understand the potential implications of offering an HRA alongside other health accounts or benefits programs.
Weigh the pros and cons specific to your client’s situation
Carefully consider the pros and cons of HRAs in the context of your client’s unique circumstances. Evaluate the potential benefits and challenges of implementing an HRA and determine if the advantages outweigh the drawbacks for your situation.
Streamline HRA administration with Take Command’s comprehensive solutions
As you navigate this decision-making process, partnering with an HRA administration software provider like Take Command can streamline the administrative burden and ensure a seamless implementation. Take Command's comprehensive solutions will help you stay compliant, educate your employees, and manage the complexities of HRA administration, allowing you to focus on what truly matters – the well-being of your workforce.
Reach out to Take Command today to learn more about how their HRA administration software can support your organization in offering a valuable healthcare benefit.
Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.