Health reimbursement arrangements (HRAs) are a simple and flexible way for employers both big and small to offer their employees health benefits by reimbursing them, tax-free, for their healthcare needs.
Whether you’re offering a qualified small employer HRA (QSEHRA) or an individual coverage HRA (ICHRA), when it comes to premiums, you have two main options on how you can set up your plan, giving you the freedom to choose which healthcare expenses you’d like to reimburse.
The two ways you can set up your HRA in regards to premiums are:
Let’s go over each plan type in more detail to help you decide which is best for you and your employees.
A premium-only HRA is just what it sounds like—an HRA that only reimburses employees for their qualifying insurance premiums and nothing else. This generally includes health insurance policies that qualify as minimum essential coverage (MEC).
Employers can also choose if they want to reimburse employees for their spouse’s employer-sponsored group insurance premiums. If so, this reimbursement will be taxable, because the employee’s spouse is likely already making a payroll deduction on a pre-tax basis.
A premium-only HRA is best for you if…
- You want to contribute to your employees’ healthcare, but don’t have the budget to also cover out-of-pocket expenses.
- You have a lot of employees on individual health insurance.
- You have a lot of employees with multiple health insurance premiums (i.e. health, dental, and vision).
It’s important to note that if you’re considering offering a premium-only HRA because of budgetary reasons, simply lowering your HRA allowance amount is another alternative. That way, your employees can still have the freedom to choose how to spend their allowance, such as if they’d rather get reimbursed for out-of-pocket expenses, while you can still stay within your benefits budget.
A premium-plus HRA is an HRA that reimburses employees for the same qualifying health insurance premiums as a premium-only plan, while also reimbursing employees for eligible out-of-pocket expenses. All of the expenses outlined in IRS Publication 502 are reimbursable with a premium-plus HRA.
A few popular eligible expenses include:
- Doctor’s visits
- Prescription and nonprescription drugs
- Dental care
- Eye glasses
- Mental health counseling
A premium-plus HRA is best for you if…
- You have a lot of employees on a spouse’s or parent’s plan that don’t need their own health insurance premiums reimbursed.
- You have a lot of employees that choose to be uninsured.
- You have the budget to reimburse more than just health insurance premiums.
Can I reimburse employees only for out-of-pocket expenses?
If you’re already offering your employees a group health insurance plan, but also want to cover the out-of-pocket costs that aren’t fully paid for in the group plan, then the group coverage HRA (GCHRA) is for you.
The GCHRA is the only HRA that exclusively covers out-of-pocket costs, not health insurance premiums, making it the perfect choice for employers looking to supplement their group health insurance plan.
With a GCHRA, employees can get tax-free reimbursements for the qualifying expenses they need to pay for before they meet their deductible, or for expenses that aren’t fully paid for by the group plan.
Having the choice between a premium-only or premium-plus HRA is one of the many ways you can customize your health benefit so it works best for you and your employees. Whether you choose to only reimburse employees for their health insurance premiums or also cover their out-of-pocket expenses, you have the freedom to make your HRA exactly the way you want it.