While sometimes referred to as “health reimbursement accounts,”, HRA actually stands for health reimbursement arrangement. They are built on a series of regulations to make sure they are being offered fairly and are achieving their intended aim, which is to help employees pay for benefits tax-free. 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.
How does an HRA account work?
The mechanics of an HRA are pretty simple. An employer chooses an HRA for his company, sets a budget that works for them, and then lets the employers know they can use it. From there, once an employee pays for a medical expense or premium, they just turn in the receipt and submit for reimbursement.
We often get asked if business owners have to pre-fund their account or send money to our account so we can distribute it to their employees. The answer is no to both questions—the money stays with the employer until an employee makes a claim that qualifies for reimbursement. If employees never make claims or don’t claim the full amount, the employer keeps it all!
What are the types of HRA accounts?
QSEHRA - the qualified small employer HRA works for businesses with less than 50 employees that do not offer a group plan.
ICHRA - the individual coverage HRA allows for tax-free reimbursement of benefits for any size business and for any amount.
What are the HRA contribution limits?
As mentioned above, with ICHRA, the sky’s the limit! There are no contribution, or reimbursement maximums.
The QSEHRA, however, does have annual contribution limits that cap the amount an employer can reimburse their employees for health insurance each year. These amounts are tied to inflation, so we expect them to go up a little bit every year. In fact, since its inception, we’ve seen a steady increase annually of about $100 for individuals and $150-200 for families.
For 2020, the contribution rates were as follows:
- Individual $5250 or $437.50/month
- Family $10,600 or $883.33/month
Why should I offer an HRA account to my employees?
- Employees can choose their own providers and plans
- Reimbursements for ICHRA can be offered to employees at different rates based on job-based criteria like full-time/part-time, geographical location, etc. QSEHRA has to be offered equally across all types of employees but can be scaled due to family size or age.
- Depending on the HRA design, employees can use them to pay for insurance premiums, medical expenses, or both
- When a company offers a QSEHRA or ICHRA, employees are eligible for a special enrollment period, which means they can shop a major medical plan on the individual market at that time (and outside of the typical open enrollment timeframe)
Can I offer an HRA and an HSA together?
The answer is yes, but there's a catch (isn't there always?). The IRS has some pretty specific rules about how these two tax-advantaged tools work together.
The main thing to remember is that you can use HSA funds any time to cover medical expenses, as long as you don't also submit the same expenses for reimbursement from your employer. No double dipping.
The post linked above dives into a lot more detail about this question.
Still have HRA questions?
We have a slew of resources available all about these tax-advantaged alternatives to traditional group coverage. Our blog contains the most recent information on HRAs. For the most comprehensive information, check out our guides to both the ICHRA and the QSEHRA.
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