As healthcare costs continue to rise, some employers are struggling to support their employees’ needs while sticking to a reasonable budget. One solution is a health reimbursement arrangement (HRA), which provides a tax-free and budget-friendly option.
You may know that an HRA is an employer-funded account from which employees can get reimbursed for their out-of-pocket medical expenses. But many don’t know that there are two categories of HRAs: integrated and stand-alone.
Both types of HRAs meet different needs. Deciding which one is right for you will largely depend on whether or not you want your HRA to supplement your group health insurance benefit, or if you’d like to offer an HRA as its own health benefit.
In this article, we’ll go into detail on integrated HRAs and stand-alone HRAs and the different types that are commonly offered including:
What is an integrated HRA?
Integrated HRAs are aptly named because they are integrated with a traditional group health insurance plan. They’re used to supplement the group plan by reimbursing employees for out-of-pocket medical expenses that are not fully covered by their plan.
Common types of expenses that are eligible for reimbursement with an integrated HRA include copays, co-insurance, and expenses paid before the deductible is met.
If you have a group health insurance plan, or are considering signing up for one, the two types of integrated HRAs we’ll discuss below will be the most beneficial to you.
Excepted benefit HRA (EBHRA)
The first type of integrated HRA is an excepted benefit HRA (EBHRA). An EBHRA allows employees to get reimbursed for additional—or excepted—medical care that isn’t included in traditional health insurance plans.
This includes expenses like dental and vision coverage, non-health coverage like accident and disability insurance, long-term care benefits, and other healthcare costs not fully covered by their primary group plan.
EBHRAs can’t be used to reimburse individual insurance premiums, group plan premiums (other than COBRA), or Medicare premiums. However, an EBHRA can be used to reimburse premiums for individual or group health plans that consist solely of excepted benefits.
See the full list of excepted benefits in our article, plus a comparison of EBHRAs and GCHRAs
It’s important to note that this benefit comes with an annual contribution maximum. For 2022, the most employers can offer is $1,800 a year.
What’s more, while an EBHRA must be offered with a traditional group health plan, employees aren’t required to enroll in the group plan in order to participate in the EBHRA. The benefit must be offered to all employees equally.
An EBHRA is a good choice for employers that:
- Want to offer a health benefit to employees that aren’t enrolled in their group plan
- Want a fixed annual contribution limit
- Don’t want to separate employees by classes
Group coverage HRA (GCHRA)
Similarly to EBHRAs, the group coverage HRA (GCHRA) allows employers of all sizes to reimburse employees for their healthcare expenses. However, unlike an EBHRA, a GCHRA can only be offered to your employees that are enrolled in your group health insurance plan.
GCHRAs are typically used with a high deductible health plan (HDHP) to supplement your employees’ high deductible, but they can work with any group health plan.
Using the GCHRA, employers are able to set their own reimbursement allowance for employees to use each month toward 200+ eligible out-of-pocket expenses. There is also no annual contribution limit, so the allowance can be as big or little as your budget allows.
A defining quality with a GCHRA is that employers can choose exactly how they want to customize their benefit by creating employee classes that offer different features to different groups of employees, such as allowance amounts, HRA deductibles, and cost sharing.
A GCHRA is a good choice for employers that:
- Have a HDHP and want to offset their employees’ healthcare costs
- Want to offer a higher allowance than the EBHRA contribution limits
- Want to offer different benefits to different employees using employee classes
New to the GCHRA? Get our guide to learn everything you need to know!
What is a stand-alone HRA?
Unlike integrated HRAs, stand-alone HRAs are not linked to a group health insurance plan. With this type of HRA, an employer provides employees a fixed monthly allowance for eligible medical expenses such as individual health insurance premiums and other qualified medical expenses.
The two most popular stand-alone HRAs are the qualified small employer HRA (QSEHRA) and the individual coverage HRA (ICHRA). If you’re looking for an alternative to group health insurance, these two HRAs might be just what you need.
Qualified small employer HRA (QSEHRA)
A qualified small employer HRA (QSEHRA) is for employers with fewer than 50 full-time equivalent employees. With a QSEHRA, employers set an allowance for employees to use on individual health insurance premiums and other eligible medical expenses. After the expense is verified, they are reimbursed up to their allowance amount.
The QSEHRA has contribution limits that are updated annually by the IRS, but no minimum contribution limits. Reimbursements are free of payroll tax for the employer and, in most cases, for their employees. Reimbursements are also free from income tax for employees, as long as their policy provides minimum essential coverage (MEC).
A QSEHRA is a good choice for employers that:
- Have less than 50 employees
- Have employees with various insurance coverage situations
- Don’t need to offer more than the annual contribution limit allows
Learn more about the QSEHRA in our one-page reference guide!
Individual coverage HRA (ICHRA)
Though similar to the QSEHRA, the (ICHRA) does have a few notable differences. An ICHRA is available for employers of all sizes and can be offered as a stand-alone benefit or or offered as an option to employees who aren't offered your group plan.
ICHRAs also set themselves apart from QSEHRAs with their flexibility to designate different employee classes. This allows employers to offer different allowance amounts to their full-time, part-time, or out-of-state employees, just to name a few.
As with HRAs, with an ICHRA, employers offer their employees a monthly allowance. Employees purchase individual coverage and other qualified expenses, and they are reimbursed up to their allowance amount. All ICHRA reimbursements are also free of both payroll tax and income tax.
If your organization offers an ICHRA, employees will have the option to opt in or out of your benefit. If they do decide to participate in the ICHRA, employees must have a qualifying form of individual health insurance coverage and attest they still are covered before they can collect reimbursements.
An ICHRA is a good choice for employers that:
- Want to offer different benefits to different employees using employee classes
- Want to offer more than the QSEHRA contribution limits
- Want to offer group health insurance to some employees and an HRA to others
Learn more about the differences between the QSEHRA and the ICHRA in our comparison chart
Conclusion
The quality of an organization’s health benefit is easily one of the top considerations for employees. With an HRA, there are plenty of options to provide competitive employee benefits without breaking the bank. Whether you’re looking to supplement a group health plan or offer a health benefit for the first time, HRAs are an affordable and customizable way to get the job done.
If you’re interested in an integrated or stand-alone HRA for your business, PeopleKeep is here to help you out! Schedule a call with one of our personalized benefits advisors and we will get you set up with the perfect.
