Can an employee have an HRA and an HSA at the same time?
A common question we receive is "Can an employee have an HRA and HSA at the same time?"
The answer is: "Absolutely, yes.” However, employers need to understand how the two benefits interact to determine if it will accomplish their goals.
To be eligible for an HSA (See IRS Publication 969), an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP). All policies that the individual uses must be "HSA-qualified,” including the HRA.
The simplest and most straightforward way for an employer to do this is to offer a "limited-purpose HRA” that only reimburses employees for expenses that are exempt from the HSA deductible requirement.
These expenses are:
- Health insurance premiums
- Wellness/preventive care (such as checkups, mammograms, smoking cessation, and weight loss)
- Dental expenses
- Vision expenses
- Long-term care premiums
A standard HRA will make an employee ineligible for an HSA because it would provide coverage for all medical expenses, including copays for prescriptions, which are not exempt.
Therefore, if you plan to offer an HRA through a provider, it’s important you make sure they give you the ability to limit expenses to just these categories.
What you need to know
To summarize, for a dual HRA/HSA health benefit to be compliant, the employee must:
- Have an HSA-qualified insurance policy
- Make their HRA HSA-qualified by limiting HRA reimbursement to the allowed categories (see 1-5 above).
Worried about compliance? PeopleKeep can help. Our software automatically limits eligible expenses to the correct categories, while our review team verifies that submitted expenses are correctly documented.
How different HRAs work with HSAs
The two different types of HRAs are:
- Stand-alone HRAs, which reimburse employees for premiums for individual insurance policies and out-of-pocket medical expenses. The primary options are an individual coverage HRA (ICHRA) and a qualified small employer HRA (QSEHRA).
- Group coverage HRAs, which reimburse employees for out-of-pocket medical expenses not covered by an employer-sponsored group health plan.
Let’s look at how each of these would work with an HSA.
Scenario 1: Stand-alone HRA
In this scenario, the employee purchases an individual health insurance policy. To be compliant, the employee must make sure that the policy they purchase is HSA-qualified. The HealthCare.gov site and most state exchanges mark these plans as “HSA-eligible.”
Second, the employer must make sure that their HRA is HSA-qualified. This means that they must limit the expenses that can be reimbursed through the HRA to the five allowed categories. Expenses can be reimbursed regardless of whether the HSA deductible has been met. PeopleKeep simplifies this by limiting the types of expenses that can be submitted and verifying that employee-provided documentation meets IRS requirements.
Scenario 2: A group coverage HRA providing limited purpose coverage alongside an employer-sponsored group plan
In this scenario, the employer must first make sure that the employees they want to offer an HSA to are also offered an HSA-qualified group health insurance plan.
Second, the employer must make sure that their HRA is HSA-qualified. As with scenario 1, this means employers must limit reimbursement eligibility to the five allowed categories. Expenses can be reimbursed regardless of whether the HSA deductible has been met. PeopleKeep can greatly simplify this, by limiting the types of expenses that can be submitted and verifying that the documentation employees provide meets IRS requirements.
It is absolutely possible to offer employees both an HSA and an HRA at the same time. However, in order to make this benefits package successful, employers need to understand how an HSA interacts with the two types of HRAs.
This post was first published in July 2009. It was last updated October 19, 2020.