A common question we receive from small employers is, “Can we still use a Health Reimbursement Arrangement (HRA) to reimburse employees for their health insurance?
The answer is, it depends. This article covers when an HRA may be used for individual health insurance reimbursement.
What is an HRA?
In case you are not familiar with an HRA, here is a quick overview. An HRA is an employer-funded health plan used to reimburse employees tax-free for out-of-pocket medical expenses and individual health insurance premiums.
HRAs are very flexible. For example, the employer can decide what types of medical expenses are reimbursed and whether funds roll over year to year. HRAs can be offered in combination with a group health insurance policy or as a stand-alone health benefit in certain situations.
In the past, stand-alone HRAs were widely used by small businesses to reimburse individual health insurance premiums, as an alternative to providing traditional health insurance coverage.
So, Can We Still Use an HRA to Reimburse Employees for Health Insurance?
For some employers, the answer is no.
Under new Affordable Care Act (ACA) reforms, stand-alone HRAs can no longer be used for health insurance premiums. There are, however, some exceptions.
We’ll discuss the new reforms, and the exceptions, next.
What are the New Reforms Impacting HRAs?
To put it simply, all group health plans, including HRAs, must comply with new ACA reforms. Under the ACA “Market Reforms,” group health plans must - among other things - not place an annual or lifetime limit on essential health benefits.
With an HRA, the employer provides a set allowance for employees to spend on healthcare. There is a limit to how much an employee can receive, so by definition, an HRA places a limit on essential health benefits.
When Can an HRA Be Used to Reimburse Health Insurance?
There are three types of HRAs that are exempt from the Market Reforms. If you offer an HRA in these circumstances, the HRA may still reimburse individual health insurance premiums:
Retiree HRAs (an HRA offered only to retired employees)
One-person stand-alone HRAs (an HRA with only one plan participant)
- The qualified small employer HRA (QSEHRA) (an HRA available to small businesses with fewer than 50 employees)
It may also be helpful to note that a group coverage HRA (sometimes called an integrated HRA) is still a compliant type of HRA. However, a group coverage HRA is not used to reimburse individual health insurance premiums. A group coverage HRA is offered alongside group health insurance coverage and reimburses medical costs not covered by the insurance plan.
In 2020, a new HRA called the individual coverage HRA (ICHRA) will allow businesses of all sizes to offer HRAs that will reimburse individual health insurance.
With new healthcare reforms, many stand-alone HRAs may no longer be used to reimburse individual health insurance.
However, small businesses have a great option available with the QSEHRA. In 2020, they'll also be able to offer the ICHRA.
What questions do you have about HRAs and reimbursing individual health insurance? Leave a question below and we’ll help answer it.