Since health insurance costs are rising in the U.S., many employers are adopting new strategies to provide their employers with health benefits -- one way being account-based health plans (ABHPs). Two common types of ABHPs are Healthcare Reimbursement Plans (HRPs) and Health Reimbursement Arrangements (HRAs). These types of health benefits lower the cost of healthcare without reducing coverage for employees.
And although both HRPs and HRAs are commonly used amongst employers, many employers are unsure what the difference is between each plan. To help clear up any confusion, we’ve put together a chart to show you a side-by-side comparison.
HRP and HRA Definitions
HRP: HRPs are employer-funded, tax-advantaged employer health benefit plans used to reimburse eligible employees for individual health insurance premiums and preventive care. HRPs are specifically designed to comply with new Affordable Care Act rules and regulations. HRPs are a type of total-replacement ABHPs. This type of approach is also referred to as a "pure" defined contribution health plan or a premium reimbursement plan.
HRA: HRAs are employer-funded, tax-advantaged employer health benefit plans used to reimburse employees for eligible medical expenses. With a group coverage HRA, the HRA is paired with a high deductible health insurance plan to reimburse employees for their deductible expenses. With a stand-alone HRA, the HRA is a total-replacement ABHP and is used to reimburse employees for eligible individual health insurance premiums and medical expenses.
As of 2014, however, health reform has placed limitations on the use of stand-alone HRAs for most employers. Types of stand-alone HRAs that are compliant under health reform include retiree HRAs, one-Person Stand-alone HRAs, and qualified small employer HRAs (QSEHRAs).
HRP vs. HRA Side-by-Side Comparison
In order to help you understand the differences between and HRP and an HRA, we've come up with a chart. You'll find that, like many ABHPs, a great deal of features and requirements are similar.
|Health Reimbursement Plan (HRP)||Health Reimbursement Arrangement (HRA)|
|Who May Contribute||Employer only.||Employer only.|
|Cost of Employer Contributions||Only pay for employee utilization (typically 25-50%).||Only pay for employee utilization (typically 25-50%).|
|Maximum Annual Contribution||Determined by employer; no statutory limit.||Determined by employer; no statutory limit except with QSEHRAs.|
|Eligibility Requirements||All employees and former employees as determined by employer, not self-employed.||All employees and former employees as determined by employer, not self-employed.|
|Purchase of Health Insurance Plan Required?||No. Employer can require proof of health insurance to be eligible for the HRP.||No. Employer can require participation in company group health insurance plan to be eligible for the HRA.|
|Medical Expenses Allowed||Unreimbursed medical care expenses as defined by IRC 213(d); including health insurance premiums. To comply with the Affordable Care Act, HRPs are designed to only allow reimbursement of eligible health insurance premiums and basic preventive services.||Unreimbursed medical care expenses as defined by IRC 213(d); including health insurance premiums. Employer can limit categories of IRS approved expenses. Eligible expenses outlined in Plan Documents.|
|Funds Carried Over to Next Year?||No.||Determined by the employer.|
|Administrator||Employer or third party administrator (TPA).||Employer or HRA software.|
|Portable After Termination||Determined by the employer.||Determined by the employer.|
Knowing and understanding the differences between HRPs and HRAs is important. Why? With various health benefits options available for your small business, it's beneficial to compare side-by-side what will work best for you and your employees.
What questions do you have about HRAs or HRPs? Leave your comments below.