Stand-Alone vs Integrated HRAs

April 11, 2013

A Health Reimbursement Arrangement (HRA), is an IRS-approved, employer-funded, medical expense reimbursement plan. An HRA allows an employer to reimburse employees tax-free for out-of-pocket medical expenses and individual health insurance premiums. 

There there are two primary types of HRAs:Stand-Alone vs Integrated HRAs

  1. Stand-alone HRAs

  2. Integrated HRAs

In this article, we'll discuss stand-alone HRAs and integrated HRAs, and how companies use them in different ways to achieve their employee benefit goals.

Stand-Alone HRA

A stand-alone HRA is not linked to a group health insurance plan. Rather, the stand-alone HRA is the company's health benefit. With stand-alone HRA:

  • The company provides employees a fixed monthly allowance for health insurance premiums and other eligible medical expenses.

  • Employees purchase their own individual health insurance premiums (often with the help of a broker or agent).

  • Using HRA Software, employees submit their expenses and the company reimburses them tax-free on payroll, up to the amount available in their HRA balance.

If group health insurance is not an option, a stand-alone HRA allows a company to offer employee health benefits. Companies value stand-alone HRAs because they control the plan and all costs. Employees value stand-alone HRAs because they choose an insurance plan that best fits their needs, and they can keep the policy when they leave the company. A stand-alone HRA is also referred to as "defined contribution."

To summarize, generally with a stand-alone HRA:

  • No group health plan is offered.

  • The stand-alone HRA reimburses individual health insurance premiums, and other out-of-pocket medical expenses.

  • Allowances are given monthly and often there is some rollover of unused funds year to year.

Integrated HRA

An integrated HRA is the more commonly-known type of HRA. An integrated HRA is linked with a high deductible group health insurance plan. The integrated HRA is offered only to those at the company who take the group health insurance plan, because it is a supplement to help employees with their deductible costs.

With an integrated HRA, usually a company has a group health insurance plan in place, but is looking to lower the cost while keeping employee's coverage (risk) the same.

  • First, a company would purchase a high deductible health plan to achieve savings with lower premiums (for example, from a $500 deductible to a $2,500 deductible).  

  • Second, they would offer an integrated HRA to cover the difference between the old and new deductible (in this example, $2,000 annually).

With an integrated HRA, insurance premiums are not reimbursable because the company is already providing an insurance plan.  However, similar to a stand-alone HRA, a company can decide what other types of eligible expenses they would like to reimburse.  It's common with integrated HRAs to only reimburse deductible or co-insurance expenses also covered under the group health insurance plan. An Explanation of Benefits (EOB) is typically required with each reimbursement request.

To summarize, generally with an integrated HRA:

  • A high-deductible health plan (HDHP) is offered.

  • The integrated HRA reimburses out-of-pocket medical expenses, often just deductible/co-insurance expenses related to the HDHP.

  • Allowances are given annually, and there is no rollover of unused funds year to year.

The Comprehensive Guide to the Small Business HRA
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