As a broker, it’s essential to familiarize yourself with various health benefit options before recommending one to your client. Among those benefit options is the increasingly popular health reimbursement arrangement (HRA).
HRAs can be very valuable for your client’s organization. They save an employer on taxes, give more freedom to employees to choose their own healthcare and expenses, and are a unique advantage to your client’s employee benefits package.
But depending on your client’s specific needs, one HRA might be a better fit than another. In the following article, we’ll go over everything you need to know about HRAs, including how they work, why they’re a good choice for your client, and how to make a referral to PeopleKeep.
What is an HRA?
HRAs are IRS-approved, employer-funded, tax-advantaged health benefits used to reimburse employees for 200+ out-of-pocket qualified medical expenses and, in some cases, health insurance premiums.
Currently, there are seven different types of HRAs available and they vary in nature. Some HRAs are stand-alone benefits, like the retiree HRA, while others work with group health insurance plans, like the integrated HRA. Some even only provide specific health coverage, like vision and dental.
The many variations of HRAs give your clients options to choose from when considering which benefit will best meet their needs.
Another HRA perk is that they are employer-owned. Unlike the popular health savings account (HSA), unused HRA funds stay with the employer if their employee quits or retires from their organization, similar to a flexible spending account (FSA).
How does an HRA work?
HRAs are simple in their setup and function. They’re unfunded by nature, with no cash value, so funds are only released when an HRA reimbursement is paid out. After verifying and approving an eligible healthcare expense, your client reimburses their employees through their HRA.
HRAs have big tax advantages. Your client’s contributions are tax-deductible and payroll tax-free. The money employees receive is also free of income taxes, as long as they have a health insurance plan that meets minimum essential coverage (MEC).
Although each HRA varies, all HRAs follow the same format:
- Your client sets an allowance amount. They decide the maximum amount of tax-free allowance money they want to offer their employees to pay for insurance premiums and healthcare expenses.
- Their employees make qualified purchases. Employees pick the healthcare items, services, and potentially individual health insurance coverage that’s right for them.
- Their employees submit documentation of the purchase. Employees submit proof that shows they have an eligible expense to be reimbursed. This is usually in the form of a receipt or invoice.
- Your client, or their HRA administrator, reviews the employee documentation. The documentation is reviewed for three items: the service or product, the date of the service or sale, and the amount paid. If the criteria is met, the medical expenses are approved.
- Your client reimburses their employees. After approving the expenses, your client sends the employee reimbursement from their allowance amount. Employees can’t exceed their allowance once the reimbursement limit is reached.
Your client can self-administer their HRA if they choose. But using an HRA administrator is often a better way to go. With an HRA administrator like PeopleKeep, your client will reduce the likelihood of IRS compliance complications, penalties, and HIPAA violations.
Why an HRA is a good idea for your client
As a trusted advisor, your clients come to you for advice, and you care about their success. Being well-informed on HRA plan advantages can help you educate your clients and guide them towards the right solution for their business.
HRAs benefit your client in the following ways:
- Greater budget control due to the ability to set a cost-effective allowance.
- Tax-deductible employer contributions with exemptions from payroll and social security taxes.
- Customizable health benefit design to suit your client’s organizational needs.
- Offers lower risk than other health benefits by not paying out any money until approved reimbursement.
- Helps your client attract and retain key talent by supplementing their employee benefits package.
To determine whether an HRA is a good fit for your client’s business, you must first understand the circumstances where a specific HRA would work best over others.
In the following sections, we’ll go through three scenarios featuring the types of HRA plans available through PeopleKeep that could benefit your client.
Qualified small employer HRA (QSEHRA)
Imagine you have a client with only five full-time employees. They don’t have the budget to offer group health insurance coverage nor the staff to manage a complex health benefit. The employer wants to allow their employees to pick the individual health plan and medical expenses that work for them without breaking the bank.
If this is the case, your client will do well with a qualified small employer HRA (QSEHRA).
The QSEHRA is a simple health benefit option for small businesses. It’s only for an employer with fewer than 50 full-time equivalent employees (FTEs) that don’t offer group health plan coverage.
With the QSEHRA, small organizations can offer different allowance amounts to their employees based on their individual or family status. The employees purchase an individual health insurance plan and other medical expenses.
It’s important to keep in mind that QSEHRAs have contribution limits set by the IRS. Allowance amounts usually rollover monthly, and the benefit is automatically available to all W-2 employees that work full-time.
However, your client has the option to offer the QSEHRA coverage to part-time employees, if they have any. As long as the part-time employees receive the same allowance amounts as full-time employees.
Also, if an employer has many employees on their spouses' group health coverage, setting up a QSEHRA would allow them to be reimbursed for their joint health insurance premium.
Individual coverage HRA (ICHRA)
Say you have a client who runs a remote company with 30 full-time employees. Current employees in one state are being offered group health insurance, but they want to offer a few employees in another state a different health benefit—one where they can pick their individual coverage. They have a flexible benefit budget, but want more personalization and control over plan eligibility and design.
If this sounds like your client, they will benefit from an individual coverage HRA (ICHRA).
The ICHRA works similarly to the QSEHRA. However, it has greater flexibility in plan design. It’s for employers of all sizes, has no contribution limits, and is only for employees with a qualifying individual health insurance policy. Therefore, employees on a family member's group policy can’t participate in the ICHRA benefit.
The major difference between an ICHRA and a QSEHRA is that the ICHRA comes with 11 employee classes, such as location, full- or part-time status, or other job-based criteria, which your client can use to structure benefit eligibility and set different allowance amounts.
These classes give an employer more customization over their health plan, allowing them to offer the ICHRA to a set class of employees and their group plan to another.
However, employees within the same class can’t be offered the choice between group health insurance and the ICHRA—employees in each class can only be offered one option.
Now imagine you have a client that runs a nonprofit organization and has been offering their 17 employees group health insurance for the past several years. However, rising healthcare prices have become too unaffordable for them. Your client wants to continue offering group health insurance for a more reasonable price while still providing their employees with a strong health benefit to retain talent.
In this case, an integrated HRA would be the right fit.
The integrated HRA, or group coverage HRA (GCHRA), is for organizations of all sizes offering a group health insurance plan. Only employees enrolled in your client’s traditional group health plan can participate in the integrated HRA.
With an integrated HRA, your client’s monthly allowance can go towards their employees’ eligible expenses that aren’t fully covered in their group health insurance plan, like copays, deductibles, coinsurance, and other medical items listed in IRS Publication 502.
For example, to save more money on insurance premiums, your client can switch to a high-deductible health plan and use the integrated HRA to offset the high deductible and pay for items not covered under the new plan.
The integrated HRA has no allowance caps, and, just like the ICHRA, your client can offer different allowance amounts to different employees based on specific employee classes.
How to refer your clients to PeopleKeep
At PeopleKeep, we strive to make personalized benefits more accessible to help businesses of all sizes better care for their employees. But we strive to support our broker partners too.
The PeopleKeep Partner Compensation Program is our way of thanking you for partnering with us and sharing our personalized employee benefits solutions, such as HRAs, with your clients. When you refer a client that signs up with us, they get their $150 sign-up fee waived, and you get paid a commission.
You can choose the compensation structure that works best for you—either as a recurring annuity or a one-time fee. Additionally, partners who refer multiple organizations that result in three or more sign-ups per calendar year qualify for bonus compensation.
Whether it’s the QSEHRA, ICHRA, or GCHRA that meets your client’s needs, a referral from their trusted advisor is the best way to get them started.
With an HRA, your client can control their costs while providing a comprehensive employee benefit to help their employees pay for insurance coverage and medical expenses. Understanding scenarios where each HRA works best will make you more knowledgeable in your recommendations and better support your client’s overall needs.
With PeopleKeep, we can help your client reach their goal of implementing a personalized health benefit solution for their company. And even better, we’re happy to pay you commission as a thank you for bringing them to us.