As healthcare costs continue to rise, employers are looking for ways to help employees manage their expenses. One of the most popular options is the Health Reimbursement Arrangement (HRA). This type of plan allows employers to offer tax-free reimbursement for medical expenses, including health insurance premiums. However, it’s crucial to handle health expense reimbursement correctly and abide by applicable legal requirements. In this article, we’ll explore the different types of HRAs and how they work.
What is an HRA?
A Health Reimbursement Arrangement (HRA) is an employer-funded and owned group health plan that allows employees to be reimbursed, tax-free, for some medical expenses. With an HRA, an employer sets aside a specific amount of money each year to pay for eligible expenses. Employees submit receipts for their medical expenses and the employer reimburses them from the HRA.
Advantages of Using an HRA
One of the main advantages of using an HRA is that it allows companies to better manage their annual budgets while offering several tax advantages. Unlike traditional health insurance, the employer maintains control over how much money is allocated to each employee’s account. This means that the employer can set a budget each year and make adjustments as needed.
Types of HRAs
There are several different types of HRAs available, including:
1. Standard HRA – A traditional HRA that reimburses employees for eligible medical expenses.
2. Individual coverage HRA (ICHRA) is a newer type of HRA that allows employers to reimburse employees tax-free for health insurance purchased on the open market.
3. Excepted Benefit HRA (EBHRA) – An HRA that allows employers of any size to use pre-tax dollars to reimburse specific benefits, such as dental and vision expenses.
4. Qualified Small Employer HRA (QSEHRA) is a specific HRA type designed to help smaller businesses offset some of their employees’ healthcare costs by providing non-taxed reimbursement of some healthcare expenses, including premium and coinsurance payments.
5. Group Coverage Health Reimbursement Arrangement (GCHRA) – An HRA that allows employers to offer a monthly benefit allowance of tax-free money to each enrolled employee.
QSEHRA (Qualified Small Employer Health Reimbursement Arrangement)
Of all the different types of HRAs available, the Qualified Small Employer HRA (QSEHRA) is a popular option for small businesses. This type of HRA is specifically designed to help smaller businesses offset some of their employees’ healthcare costs by providing non-taxed reimbursement of some healthcare expenses, including premium and co-insurance payments.
The QSEHRA allows employees to be reimbursed for a variety of healthcare expenses, including health insurance premiums, copays, deductibles, and other out-of-pocket expenses. The employer sets a yearly amount that can be reimbursed, and employees are allowed to submit receipts for covered expenses.
Advantages of using a QSEHRA
There are several benefits of using a QSEHRA, including:
1. Lower healthcare costs – The QSEHRA can help lower healthcare costs for both employers and employees by reducing premiums and out-of-pocket expenses.
2. Easy to set up – Setting up a QSEHRA is relatively easy and requires less paperwork than traditional health insurance plans.
3. Tax savings – Both employers and employees can save money on taxes by using a QSEHRA. Employers can deduct the amount of money they spend on the HRA, while employees don’t have to pay taxes on the reimbursements they receive.
Healthcare expenses that can be reimbursed through QSEHRA
The QSEHRA allows employers to reimburse employees for a wide range of healthcare expenses, including:
1. Health insurance premiums – This is the most popular expense that can be reimbursed through a QSEHRA. The QSEHRA can help offset the cost of health insurance premiums for employees.
2. Co-pays and deductibles – The QSEHRA can also help cover co-pays and deductibles for employees.
3. Prescriptions – The QSEHRA can help cover the cost of prescription medications.
4. Vision and dental expenses – these types of expenses can also be reimbursed through the QSEHRA.
Compliance of HRAs
While the Affordable Care Act (ACA) doesn’t directly govern HRAs, employers must follow the Employee Retirement Income Security Act of 1974 (ERISA), IRS, and other regulations to remain compliant. Employers need to be aware of the enrollment requirements, contribution limits, timing of contributions, and other rules related to HRAs.
Adding an HRA to an employee benefits package is an excellent way for employers to help their employees manage their healthcare costs. With different types of HRAs available, it’s important to find the one that best fits the needs of the company and its employees. When employers add an HRA to their employee benefits package, they can help with healthcare expenses and show how valuable their team is to the organization’s bottom line.