Since health reimbursement arrangements (HRAs) were first introduced, regulations have changed significantly in a back-and-forth way. As regulations flip-flopped during the earlier days, people often felt confused with HRAs causing debate regarding what the current health benefits rules are, which plans are available, and what can be reimbursed. Luckily, over the last several years, HRAs have remained stable, helping ensure they are a reliable benefit to offer to employees.
In this post, we’ll clear up the confusion around HRA’s by discussing three common questions people ask us.
1. What is an HRA?
An HRA is an employer-funded health plan used to reimburse employees, tax free, for out-of-pocket medical expenses and with some plan types, individual health insurance premiums.
One of the main benefits of an HRA is its flexibility. Employers can decide which medical expenses they want to reimburse, which employees are eligible to participate, how much money they want to offer their employees in the form of allowances, and whether unused employee allowances can roll over year to year.
HRAs are also a great way for employees to choose the care they need on their own, rather than there being one insurance plan for all employees.
2. Can my organization use an HRA to reimburse employees for health insurance?
Great news! Yes, employers of all types are able to participate in one of the HRA plan types to reimburse employees for qualified healthcare expenses, including individual health insurance premiums.
With a QSEHRA, employers reimburse employees tax-free for their medical expenses, including individual health insurance premiums. A QSEHRA is a health benefit for employers with fewer than 50 full-time equivalent employees and who aren’t offering group health insurance plan.
Like the QSERHA, the ICHRA can also be used to reimburse employees for individual health insurance premiums and other medical expenses. An ICHRA can function as a stand-alone benefit or alongside group health insurance as a separate option in an organization’s health benefits program, so long as both plans aren’t offered to the same employee classes. The ICHRA is a health benefit for employers of all sizes.
3. Why offer an HRA instead of traditional group health insurance?
Many employers choose not to offer traditional group benefits because of cost, complexity, and one-size-fits-all plan options. HRAs are a simple, controlled-cost alternative way to provide health benefits to employees that empowers them to choose the plan that works best for them.
This can help employers keep great employees and attract the best talent.
4. Can we ever use an HRA and group insurance for the same employees?
Employers that see value in a group health plan for their organization can still save on health benefit costs with a group coverage HRA (GCHRA). With a GCHRA, employers are able to supplement a group health insurance plan with an allowance used to help cover employees’ deductibles.
A GCHRA is most effective when paired with a high deductible health plan (HDHP). Like other HRAs, employers set an allowance to be made available to employees for healthcare expenses. In addition, the employer can set a deductible that employees must meet before they can tap into their allowance. Additionally, coinsurance or cost-sharing can be determined.
For example, a GCHRA could allow employees to use their allowance after meeting a $300 deductible. Then when the allowance is used, employees can still be responsible for a percentage of the total cost. HDHP plans generally have lower premium costs which help employers save. The GCHRA allowance helps offset the higher insurance deductibles employees are faced with. That way both the employer and employee can save.
HRAs were once viewed as an unpredictable fringe benefit. Now, they can be a valuable tool in the health benefits plans of any employer. This can help an organization offer a benefit when they might not otherwise be able. And most importantly, it’s a benefit that employees will love.
This article was originally published June 29, 2015. An updated version was posted on January 12, 2021.