If you’re an employer looking for an affordable and flexible health benefits solution, a health reimbursement arrangement (HRA) is a great option that both you and your employees can benefit from.
With an HRA, you simply provide a monthly allowance to your employees to purchase their own individual health insurance and qualifying medical expenses. You get a cost-controlled option you can budget for every month, while your employees get a personalized benefit that meets their unique healthcare needs.
Setting up your first HRA is easier than you’d think. We’ll walk you through the six-step process you’ll follow to start offering an HRA.
Step 1: Choose which HRA you want to offer
There are three types of HRAs:
- Qualified small employer HRAs (QSEHRAs)
- Individual coverage HRAs (ICHRAs)
- Group coverage HRAs (GCHRAs)
QSEHRAs are a specific type of HRA designed for employers with fewer than 50 full-time employees. With a QSEHRA, all of your full-time employees are eligible to participate no matter their insurance status, so it’s a great choice if you have a lot of employees in a variety of different insurance situations.
QSEHRA allowance amounts are capped at a certain annual limit, so you won’t be able to offer more than the maximum limit to your employees. However, there’s no minimum allowance limits, so you’re free to choose any amount you want to offer so long as it’s not more than the max annual limit.
Next, ICHRAs are another type of HRA that can be offered by organizations of all sizes. An ICHRA can be offered as a stand-alone benefit to all of your employees, or as an option for employees of different classes who don’t qualify for your group health plan, such as your part-time or seasonal workers.
Unlike a QSEHRA, there’s no annual limit for ICHRA allowance amounts, so if you want to offer more than the QSEHRA limits will allow, an ICHRA is your best option.
Finally, GCHRAs are HRAs offered exclusively to employers already offering a group insurance plan. Employees can use their GCHRA allowance to get reimbursed for qualifying medical expenses they need to pay for before they meet their deductible or out-of-pocket maximum, or other expenses that aren’t fully paid for by the group plan.
Step 2: Customize the benefit
One of the biggest advantages HRAs have over traditional group health insurance plans is their flexibility. With an HRA, you get to customize the benefit so it’s completely personalized for your organization’s needs.
Depending on which type of HRA you choose, you’ll decide things like:
- How much of a monthly allowance to offer
- What expenses are eligible for reimbursement
- Which employees you want to participate
Step 3: Choose a start date
Your start date is the date the HRA will begin. The good news is that HRAs can begin at any time, so if you’re in a hurry to get something in place, you don’t need to wait for an enrollment period to get started.
If you want to start your plan in the middle of the year, you’re also always welcome to start a new plan year when January rolls around to make your plan year match up with the calendar year.
Step 4: Make needed changes to your current policy
Depending on the HRA you want to offer, you may have to cancel your organization’s group policy or remove a class of employees from the policy.
For example, if you offer a QSEHRA, you must cancel any existing group policy first. With an ICHRA, you’re allowed to keep your group policy, but you need to make sure any employees receiving the ICHRA don’t qualify for the group plan.
Finally, for a GCHRA, employees must be participating in a group health insurance plan when the HRA begins.
Step 5: Create and distribute plan documents
You must establish legal plan documents and make them available to your employees, including a plan document and a summary plan description outlining the details of your plan.
When you sign up for an HRA with PeopleKeep, we automatically generate these documents tailored to the plan details you set up and make them available to employees. Otherwise, you’ll have to draft your own documents, usually with the consultation of a lawyer to ensure your plan is compliant.
Step 6: Tell your employees about your HRA
Many of your employees may have never used an HRA before, so you’ll want to clearly communicate the benefits of the HRA to them, explaining how it works, and when it’s starting.
If you choose to offer a QSEHRA or an ICHRA, you should also provide resources to help your employees purchase individual health insurance. After all, nearly half of Americans get coverage under an employer-sponsored group plan, so a lot of your employees may never have had individual coverage before.
This doesn’t involve advising your employees on which policies to buy. Instead, your organization should make it as easy as possible for employees to purchase policies. You can do this either by coordinating with a benefits advisor to help your employees choose and purchase a policy, or by directing them to an online service that does the same thing.
By following these six steps, you’ll be well on your way to setting up and compliantly administering your very first HRA! But you don’t have to go it alone. PeopleKeep has helped thousands of organizations set up their own HRA, and we’re here to help you, too.
Our personalized benefits advisors can help you answer questions, set up your HRA, and guide you through the beginning stages of your new benefit.This article was originally published on August 8, 2012. It was last updated June 3, 2021.