The ABCs of HRAs: A guide to health reimbursement arrangements

In today’s complex world of employee benefits and healthcare, health reimbursement arrangements (HRAs) have emerged as a valuable tool for employers and employees alike. HRAs, also referred to as IRS Section 105 plans, provide a means for businesses to help their employees cover medical expenses while offering greater flexibility in tailoring their benefit packages.

An HRA is an employer-funded benefit plan that allows eligible employees to be reimbursed for qualified medical expenses. These expenses may include deductibles, copayments, prescription medications, vision and dental care, and other eligible health-related costs. HRAs are entirely funded by the employer, and can be used to reimburse employees for all or some of the items outlined in IRS Section 213D, as specified by the employer.

A is for “Advantages of HRAs”

For Employers:

• Cost Control: Employers can set a specific budget for the HRA, determining the contribution amount and limiting what is eligible for reimbursement, thus ensuring predictable expenses.
• Tax Benefits: HRA contributions are generally tax-deductible for employers, resulting in potential tax savings.
• Talent Attraction and Retention: Offering competitive benefits, such as HRAs, can attract skilled employees and improve retention rates.

For Employees:

• Expanded Coverage: HRAs can bridge the gap between high-deductible health plans and medical expenses, providing more comprehensive coverage.
• Tax Savings: Reimbursements received through HRAs are typically tax-free for employees.
• Engagement: HRAs encourage proactive health management, leading employees to be more conscious consumers of healthcare and potentially leading to better long-term outcomes.

B is for “Broad Range of HRA Types”

Several types of HRAs exist, each with its own features and regulations. Common types include:

1. Integrated HRA: This HRA is tied to a group health insurance plan. It reimburses employees for out-of-pocket expenses after they reach their deductible. It is often used in conjunction with high-deductible health plans (HDHPs).
2. Individual Coverage HRA (ICHRA): Allows employers to cover premiums for health insurance coverage as well as other 213(d) expenses, providing more of a defined contribution model for consumers to acquire health insurance and an employer to meet “minimum essential coverage” requirements of ACA.
3. Qualified Small Employer HRA (QSEHRA): Designed for small businesses, QSEHRAs are available to employers with fewer than 50 full-time equivalent employees. These HRAs allow employers to cover health insurance premiums and other 213(d) expenses.
4. Excepted Benefit HRA (EBHRA): Offered alongside a traditional group health plan, EBHRAs are designed to cover expenses for eligible excepted benefits, such as dental and vision care, or a specific illness or disease policy.

C is for “Considering How HRAs Work”

The functioning of HRAs can be broken down into simple steps:

1. Employee Enrollment: Employees become eligible for an HRA according to the employer’s plan guidelines, which often involve meeting certain employment criteria and completing a waiting period.
2. HRA Funding: Employers decide how much money will be allocated to each employee’s HRA annually or at regular intervals.
3. Qualified Expenses: When employees incur eligible medical expenses, they submit receipts or claims to the HRA administrator for reimbursement.
4. Reimbursement: Once the administrator verifies the expenses as qualified, the employee is reimbursed using the HRA funds.
5. Carded plans: In the case of a carded HRA, employees use a debit card to facilitate payment, rather than having to pay out of pocket. Auto-substantiation rules can be put in place to minimize the need to submit documentation.

HRAs offer a win-win solution for employers seeking cost-effective ways to support their employees’ healthcare needs and for employees looking for enhanced medical coverage. By understanding the ABCs of HRAs, businesses can create more attractive benefits packages while empowering their workforce to access essential healthcare services and take charge of their spending.