The benefits of an HRA

Many employers cannot offer traditional group benefits because of their high, unpredictable cost; complexity to manage; and lack of employee choice. HRAs are a simple, cost-efficient way to provide health benefits to employees. In addition, HRAs have a fixed cost unlike a group health plans that are often subject to significant, annual rate hikes.

Many people believe health insurance must be tied to their employer. With an HRA, it becomes possible to separate insurance from a specific organization. Employers can give employees tax-free money to purchase insurance on their own that meets their personal needs.

HRAs are as simple as wages without the taxes. With an HRA, you set a monthly benefit allowance that employees use to cover their medical expenses.

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How HRAs
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Which HRAs do PeopleKeep offer?

PeopleKeep offers HRAs that work for any employer, regardless of your organization’s size, group insurance status, or budget.

Currently, we offer the following three products:

Qualified Small Employer HRA (QSEHRA)

A QSEHRA is available to employers with fewer than 50 employees that do not offer a group health insurance policy. With a QSEHRA, you can offer allowances up to $5,250 for single employees and $10,600 for employees with a family in 2020. All employees must receive the same allowance amount, except in cases regarding an employee’s family status.

Individual Coverage HRA (ICHRA)

An ICHRA is available to employers of all sizes and functions much like the QSEHRA, though with greater flexibility. Many employers choose to offer an ICHRA because it looks and feels like a group health plan with a few key differences. With the ICHRA, there are no allowance caps, and you can offer different amounts to employees based on employee classes. It is only available to employees covered by their own individual health insurance policy, and can be offered as a standalone benefit, or alongside group health insurance. Finally, an ICHRA offers complete budgetary control and offers employees the chance to choose the plan that works for them.

Group Coverage HRA (GCHRA)

The Group Coverage HRA (GCHRA) is available to employers that already offer a group health insurance policy. In this benefit, only employees covered by your organization’s existing group policy qualify for this HRA. A GCHRA helps employees pay for out-of-pocket expenses like deductibles, copays, and medical expenses that the insurance plan doesn’t pay for.

Find out which HRA fits your organization's needs best: take the quiz.

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Comparing the PeopleKeep HRAs

Currently, you have the option to choose between multiple HRAs including: a Qualified Small Employer HRA (QSEHRA), an Individual Coverage HRA (ICHRA), and a Group Coverage HRA (GCHRA). Choosing which HRA is right for you can feel complicated. We’ve made it simple with our HRA comparison chart.

Compare our three HRAs using the chart below:

HRA Comparison Chart

Feature

QSEHRA

ICHRA

Group Coverage HRA

Business size restrictions

Limited to businesses with fewer than 50 FTE employees

None

None

Allowance amount restrictions

Limited to $5,250 for self-only employees and $10,600 for employees with a family in 2020. Businesses cannot give different employees different allowance amounts based on criteria other than family status.

None

No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria.

Group health policy requirements

Can’t be offered with a group health policy

Can be offered with a group health policy, but employees cannot have a choice between the group policy and the HRA.

Must be offered with a group health policy

Individual health policies permitted

Yes

Yes; in fact, they're required for participation in the HRA.

No

Premium tax credit coordination requirements

Employees must reduce their premium tax credit by the amount of their HRA allowance.

Employees cannot collect premium tax credits and participate in the ICHRA. However, if the ICHRA allowance is considered unaffordable, employees may waive the HRA and collect the credits.

N/A. These HRAs can’t reimburse employees for individual premiums.

Annual rollover permitted

Yes

Yes

Yes

Medical expenses available for reimbursement

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502 with the exception of individual insurance premiums

Employee eligibility guidelines

All full-time employees are eligible. Businesses can decide on part-time employee eligibility.

Businesses can decide on eligibility based on 11 different employee classes.

None

Who can offer an HRA?

Generally, all organizations can offer at least one type of HRA, but each one comes with different participation guidelines, especially when it comes to defining eligibility for business owners.

Here’s a brief look at each HRA:

  • QSEHRA: Your organization must have fewer than 50 full-time employees and cannot offer group coverage.
  • ICHRA: Available to organizations of all sizes. With an ICHRA, you cannot offer employees in the same class a choice between group coverage and the ICHRA.
  • Group coverage HRA: Organizations offering a group health insurance plan qualify.

Can S corporation owners participate?

IRS regulations dictate that S Corporation owners and their dependents who own more than 2% of a business cannot participate in an ICHRA. This is because owners can write off their medical expenses through other means and are not considered employees of the business by the IRS. Fortunately, this rule only applies to owners and their dependents, ensuring that employees remain eligible for the benefit.

Learn more about which types of business owners can participate in an HRA:

Download the owner eligibility infographic

How does an HRA work?

There are four main steps that employers and employees use to submit and reimburse expenses:

You set an allowance

When offering an HRA, you first decide how much tax-free money you will offer employees every month. This represents the maximum amount your organization will reimburse the employee for health care. Once an allowance is set, it is impossible to go over budget. Note that the group coverage HRA gives you the option to offer the entire benefit period’s allowance on day one (usually a year).

Employees purchase health care

Employees choose the health care products and services they want and purchase them with their own money. You can find a full list of eligible expenses using our expense tool, though you can limit these items according to your preference. Note that this step is not relevant for group coverage HRA participants, as they will be enrolled in a group health insurance plan.

Watch our webinar to learn how an HRA works for employees

Employees submit proof of incurred expense

To receive reimbursement, employees must submit proof that they incurred an eligible expense. Typically, this takes the form of a receipt, and in some cases, includes a doctor's note. In order to remain HIPAA compliant, many employers choose to use an HRA administration tool like PeopleKeep. Once we receive the documentation, our team reviews it to ensure it is eligible and contains all the necessary information.

Documents get reviewed

To receive approval, employees’ documentation must show the service or product purchased, the amount incurred, and the date of the service or sale. If these three items are in place and our team confirms the expense is eligible for reimbursement, your assigned HRA administrator approves the expense and reimburses the employee up to their allowance amount.

How to set up an HRA

To start offering an HRA, you must follow a six-step process:

  1. Design your benefit

    These rules include employee eligibility requirements, employee classes, and the expenses that qualify for reimbursement.

  2. Choose a start date

    This is the date the HRA will begin. Fortunately for organizations that want something in place quickly, HRAs can begin at any time.

  3. Make group policy decision

    Depending on the HRA you want to offer, you may have to cancel your organization’s group policy or remove a class of employees from the policy. If you offer the QSEHRA, you must cancel any existing group policy first. With the ICHRA, you must ensure employees receiving the ICHRA do not qualify for a group policy. As for a GCHRA, employees must be participating in a group health insurance plan when the HRA benefit begins. ).

    Not sure how to cancel your policy? Download our tool kit

  4. Create and distribute plan documents

    You must establish legal plan documents and make them available to employees. This includes a plan document and a summary plan description (SPD). When you sign up for an HRA with PeopleKeep, we automatically generate these documents and make them available to employees in their user portal. Otherwise, you will have to draft your own documents, usually with the consultation of a lawyer to ensure your plan is compliant.

  5. Communicate the new HRA to employees

    You should communicate clearly and effectively with employees about how the new HRA works and that it is available to them. In all cases, the law requires this communication to occur.

  6. Provide resources to employees

    If you choose to offer a QSEHRA or an ICHRA, you should provide resources to help employees purchase individual health insurance. For HRAs that support individual coverage, such as the ICHRA and the QSEHRA, you should give employees resources for comparing and purchasing personal policies.

    PeopleKeep offers a free health insurance concierge that can help you employees shop for insurance, helping save you time and money.

    Are you ready to sign up for an HRA? Get started today

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HRA
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How to manage an HRA

Offering an HRA that is not compliant with IRS regulations can lead to fines up to $100 per employee per day. Running this risk is simply not an option for most, which is why PeopleKeep ensures our customers administer their HRA compliantly.

To ensure your HRA is compliant, PeopleKeep does the following:

  1. Keep the benefit up to date

    Employees come and go, and you may choose to make changes to expense eligibility or employee class structure. Throughout the life of the benefit, you must update this information in your plan documents as they occur. When you keep your employee records updated in our software, this data is automatically recorded and tracked. In addition, any changes you make to your PeopleKeep benefit design instantly generate new plan documents which are stored in your online portal and available for download.

    The specific changes you can make to an HRA in the middle of the benefit year depend on the HRA. Speak with a personalized benefits advisor at PeopleKeep to learn more.

  2. Process reimbursements and keep audit-ready

    You must process and pay reimbursements as they come in. The IRS and Department of Labor also require proper storage of these documents. PeopleKeep’s award-winning support team processes these documents for you, and we keep the records beyond the minimum seven years that the IRS requires so you will always be ready in the event of an audit.

  3. Track regulatory changes and update plan documents

    Whenever regulations regarding HRAs change, you must update your plan documents and send timely notices to employees. When you make a change in the PeopleKeep software, your employees will see the changes when they log into their portal. In addition, our team regularly participates in regulatory reviews with the federal government, making us the foremost experts in the HRA industry.

    The time employers must spend to do all of these things can be daunting, which is why so many employers turn to HRA administration software to automate this management. Without software, it's easy to run into compliance trouble and HIPAA privacy violations.

    With HRA administration software, you can change certain details in the plan benefits at any time, depending on the HRA you offer, or even cancel the plan completely. In fact, HRA administrators like PeopleKeep make real-time monitoring of HRA liabilities, reimbursements, and utilization easy. The typical PeopleKeep customer spends just 10 minutes a month administering the HRA.

Interested in seeing how our HRA software works?

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Frequently asked questions

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Can business owners participate in an HRA?
Almost all business owners can participate in an HRA, except for S Corporation owners with more than 2% ownership in the organization. See our article on owner eligibility with HRAs.

Can you offer health insurance to only certain employees?

Depending on the HRA, you have the ability to make the health benefit to certain classes of employees. To learn more, see our article on employee eligibility


What is the difference between an HRA and an HSA?

The biggest difference between health reimbursement arrangements (HRAs) and health savings accounts (HSAs) is that the business owns the HRA while the employee owns the HSA. In addition, an HRA is a reimbursement arrangement between an employer and employee, whereas an HSA is a savings account that is owned by the employee. To learn more, see our article on HRAs vs. HSAs.


Can I have an HRA and an HSA at the same time?

Yes! And you should take advantage of both. Unique rules apply to users, especially regarding what items are available for reimbursement when an HSA is in place. To learn more, read our article on using HRAs and HSAs.


What health insurance premiums can an HRA reimburse?

HRAs can reimburse many health care products and services, including the following types of insurance premiums, provided they were not already paid with pre-tax dollars: Major medical individual health insurance premiums; Dental care and vision care premiums; Qualified ancillary premiums (e.g., accident policies); Medicare Part A or B, Medicare HMO, and employer-sponsored health insurance premiums; Medicare Advantage and Supplement premiums; and COBRA premiums. To learn more, read our article on reimbursing premiums with an HRA.