There's been a lot of talk lately about stand-alone HRAs, especially with new regulations on the horizon that will effectively make tax-free reimbursement for health insurance more flexible and practical for business owners. Since a stand-alone HRA is basically a big umbrella term that encompasses several types of HRAs, we wanted to offer a little context and explanation. And let's be honest, we also want to talk about our two favorite stand-alone HRAs.
Let's jump in.
Most folks are familiar with HRAs, or “Health Reimbursement Arrangements.” They are not overly complicated or scary but are built on a series of regulations to make sure they are being offered fairly and are achieving their intended aim of helping employees pay for benefits tax-free.
The regulations that have historically (and still) govern traditional HRAs come from Tax Code Section 105. Because of this you’ll hear tax geeks and insurance brokers refer to “Section 105 HRAs”.
What's the difference between an integrated HRA and a standalone HRA?
You’ll also hear people talk about Integrated HRAs and Standalone HRAs.
Here’s the difference:
- Integrated HRAs are “integrated” with a traditional group health insurance plan and used to help reimburse out-of-pocket medical expenses not paid for by the group health plan. Typical examples would be co-pays, co-insurance, deductible payments, etc.
- Standalone HRAs are not required to be tied to a group plan. They have a complicated history and can be even more complicated to implement based on tangled federal and state insurance regulations.
Which HRAs fall into the stand-alone HRA category?
Let's cut to the chase. The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and the Individual Coverage Health Reimbursement Arrangement (ICHRA) are the top two we are fired up about, especially when it comes to helping businesses afford health insurance for their staff.
Both of these HRAs fall in the category of stand alone HRAs (i.e., they can work without being "integrated" with a group health plan).
Here's the highlight reel of what each offers:
- QSEHRA—A result of the bipartisan 21st Century Cures Act, available since 2017.
- For small business with less than 50 employees
- Reimburses premiums and qualified medical expenses
- Contribution limits: $5,150 for single employees, $10,450 for families for 2019.
- Employer can design reimbursements to vary based on age, family size, status
- Participants must have MEC, otherwise they receive reimbursements as taxable income
- All full time employees are eligible to participate
- Cannot be offered with a group plan
- Funds roll over year to year as long as total doesn't exceed maximum contributions.
- For employees eligible for premium tax credits, QSEHRA reimbursements reduce the tax credit dollar for dollar. Unfortunately, employees can't opt-out.
- ICHRA—A pending option for tax-free health reimbursement as a result of President Trump's executive order to expand HRA abilities, expected in January 2020.
- Available to businesses of any size
- Reimburses premiums and qualified medical expenses
- No maximum contribution
- Participants must have MEC
- Participation is at the discretion of the employer based on 9 (or potentially more) employee classes, like location. HRA can be designed to reimburse at different rates for different classes.
- May be offered with a group plan, but employer can't offer employees in the same class a choice between HRA and group plan.
- Funds roll over year to year.
- Employees participating in the HRA aren't eligible for premium tax credits if the ICHRA is considered affordable, but if the amount the employee must pay for a self-only silver plan (the lowest cost silver plan on the exchange) is greater than 9.86% if their household income, the ICHRA is considered "not affordable" and the employee may opt out of the ICHRA and choose the premium tax credit instead.
While QSEHRA and ICHRA are similar in many ways, they have their differences as well.
A few other types of stand-alone HRAs that still linger around include:
- Spousal HRA—For employees covered by a spouse’s group plan, a Spousal HRA could reimburse medical expenses but not premiums.
- Retiree HRA—For former employees of a firm, an employer could use a Retiree HRA to help pay for retired members’ insurance premiums and medical expenses.
- Medicare HRA—For employers with less than 19 employees, employers could elect to reimburse a portion of an employee’s Medicare supplement premiums.
If you are considering a stand-alone HRA for your employees, you've come to the right place. We are carefully tracking the upcoming regulations that will affect business owners are we're excited to hit the ground running when the new ICHRA hits January 2020. Until then, give our Small Business HRA Tax Strategy Guide a read-through, check back for updates, or contact our small business experts by clicking the button below. We would be happy to help you sort out which HRA would work best for your business.
For more information on what's coming, chat with our team with any questions you may have about the new, tax-friendly benefits coming in 2020 or check out our new ICHRA Guide for more information on its background, setup process, requirements, and rules.
We will keep this page updated as more information comes in. Stay tuned!