What is an HRA? It's a health reimbursement arrangement. Two recently created HRAs allow an employer to reimburse for medical expenses and/or insurance premiums on a tax-free basis. Under this arrangement, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses.
An alternative to traditional group plans, HRAs 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.
What is a HRA?
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.
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.
Benefits of a health reimbursement arrangement
There are many benefits of a health reimbursement arrangement.
Here are a few notable ones:
- 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
There are several types of HRAs that business owners can offer to their team. Our small business tax strategy HRA guide can help direct you to the best one for your business.
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.
Ready to learn more?
Need help sorting through the details of your HRA options and finding the right one for you? Our team of experts are on hand to help. Just chat with us on our website, or check out one of our helpful guides on our favorite HRAs, like our ICHRA Guide and QSEHRA Guide. You might find some of our HRA posts helpful, such as our step by step post on how HRAs work.