You are probably familiar with health savings accounts, or HSAs, but have you heard about HRAs? While they've been around for a while, HRAs are gaining traction recently among businesses of all sizes due to regulatory rule changes that make them more accessible, flexible and easy to use.
An alternative to traditional group plans, these 401(K) style benefits put the power in the employees' hands, shifting the risk from the employer and offering more personalization and choice for workers. They are also an effective recruitment and retention strategy.
HRA stands for health reimbursement arrangement. These are tax-advantaged tools that are built on a series of regulations that help to ensure they are being offered fairly and are achieving their intended aim, which is to help employees pay for benefits tax-free.
Tax Code Section 105 is the regulations that cover this type of tax-friendly tool. That's why you'll hear industry folks toss around the term "Section 105 HRAs."
A health reimbursement arrangement works pretty much exactly how it sounds: the employer reimburses for premiums and medical expenses on a tax-free basis, and the employee chooses a plan that fits their needs. Employees are reimbursed when they submit a claim.
Highlights of the health reimbursement arrangement
- Funded entirely by Employer (no employee contributions)
- Account owned by Employer- funds stay with employer if employee leaves company
- Reimburses health insurance premiums and medical expenses
- Money is reimbursed for expenses/premiums after they are incurred and receipts are provided
- Employees must have health insurance (minimum essential coverage) to participate
- Tax benefits: Tax free for both employee and employer
Types of HRAs
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.
- ICHRA—The individual coverage HRA allows for tax-free reimbursement of benefits for any size business and for any amount.
- EBHRA—Excepted Benefit HRAs are limited to paying for excepted benefits, like premiums for vision and dental coverage or similar benefits exempt from ACA and other legal requirements.
- Qualified Small Employer HRA—For businesses with less than 50 employees that do not offer a group plan, business owners can set up a QSEHRA for their team to help pay for benefits tax-free. We believe QSEHRA supersedes the following standalone HRA options in about 99% of situations.
- 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.
Take Command Health is here to help!
We are always available to chat online- please reach out! Or, we have lots of resources to help guide you, and we've written a slew of blog posts all about HRAs. Here's a step by step guide to how HRAs work. We also have a comprehensive guide to small business HRAs.