Health Reimbursement Accounts for Dummies: A Comprehensive Overview

Health Reimbursement Accounts (HRAs) are a type of employer-sponsored benefit that can help you save money on medical expenses. They're essentially a way for your employer to give you a tax-free stipend to use on healthcare costs.

An HRA is a separate account from your health insurance plan, but it's often tied to your job. Your employer contributes a certain amount of money to the account each year, which you can then use to pay for qualified medical expenses.

By using an HRA, you can reduce your taxable income and lower your healthcare costs. This can be especially helpful if you have high medical expenses or a large family.

HRAs are often used in conjunction with high-deductible health plans (HDHPs), which require you to pay a certain amount of money out-of-pocket before your insurance kicks in.

An HRA, or health reimbursement arrangement, is an IRS-approved, employer-funded health benefit. Employers can reimburse employees for more than 200 out-of-pocket expenses with an HRA.

Here are some examples of HRA-eligible expenses:

An HRA, or health reimbursement arrangement, is an IRS-approved, employer-funded health benefit that allows employers to reimburse employees for out-of-pocket expenses.

With an HRA, employees can be reimbursed for expenses such as deductibles, co-pays, and prescription medications. These expenses can add up quickly, so an HRA can be a big help.

Here are some examples of HRA-eligible expenses:

Some HRAs can also reimburse employees for individual health insurance premiums, depending on the type of HRA offered.

Health Maintenance Organizations, or HMOs, have a structured approach to healthcare management. They require members to choose a primary care physician and obtain referrals to see specialists.

This emphasis on preventive care and keeping costs within the network can be beneficial for those who prioritize health maintenance. However, it may not be ideal for individuals who value flexibility in their healthcare choices.

HMOs are often compared with Health Reimbursement Arrangements, or HRAs, due to their differing approaches to healthcare management. HMOs can be restrictive in terms of provider choices and care pathways.

As you navigate the world of health reimbursement accounts, you'll encounter various types of HR professionals who can help you understand and utilize these accounts effectively.

HR departments often have a dedicated benefits administrator who handles employee benefits, including health reimbursement accounts.

These professionals can provide guidance on plan design, enrollment, and compliance, ensuring that your health reimbursement account is set up correctly.

There are several types of HRAs to choose from, each tailored to different employer needs and health plan structures. Here's a breakdown of the main types.

A Qualified Small Employer HRA (QSEHRA) is designed for small businesses with fewer than 50 full-time equivalent employees (FTEs). It allows for tax-free reimbursement of health insurance premiums and qualified medical expenses.

There are six different types of HRAs available, each with its own set of rules and benefits. Let's briefly go over each option to give you a better idea of how they work.

Here are the main types of HRAs:

The Group Coverage HRA (GCHRA) is available to businesses of all sizes. Organizations must offer a group health insurance policy for employees to take advantage of the HRA.

A Flexible Spending Account, or FSA, is primarily funded by the employee through pre-tax salary reductions.

Employees can contribute to their FSA voluntarily, and some employers may also contribute to the account.

FSAs are "use it or lose it" accounts, typically requiring employees to use all funds within the plan year.

Employees have limited carryover options with FSAs, and unused funds are usually forfeited at the end of the plan year.

FSAs allow employees to pay for qualified medical expenses with pre-tax dollars, reducing their taxable income.

An HRA works by allowing employers to choose a monthly or annual allowance amount for reimbursement, which employees can use to pay for eligible medical care expenses throughout the year.

The employer sets an allowance amount that fits their budget, and employees can shop for a health plan that works best for their family and then get reimbursed on their paycheck.

Here's a step-by-step breakdown of how HRAs work:

HRAs, or Health Reimbursement Arrangements, have a fascinating history. They originated in the 1960s to 1990s as employers started offering reimbursement for medical expenses not covered by health benefits plans.

Deductibles and exclusions became more common, making it necessary for employers to step in and help their employees with healthcare costs. The IRS formally recognized HRAs in 2002 as an employer-funded health benefit for employees.

This type of health coverage allows employers to reimburse employees, tax-free, for their healthcare expenses. The Affordable Care Act (ACA) prohibited individual health insurance from integrating with an HRA in 2014.

As a result, organizations could only offer integrated HRAs alongside a group plan. In 2016, Congress created the QSEHRA, and in 2019, the Departments of the Treasury, Labor, and Health and Human Services created the ICHRA.

An HRA, or Health Reimbursement Arrangement, is a type of benefits plan that allows employers to reimburse employees for medical expenses. Employers set a monthly or annual allowance amount that fits their budget.

This amount can vary depending on factors such as employee class, age, or family size. The employer's contribution is tax-deductible and payroll tax-free.

The process of using an HRA is straightforward. Here are the five steps involved:

The money employees receive is also free of income taxes as long as they have a health plan that provides minimum essential coverage (MEC).

An HRA, or Health Reimbursement Arrangement, is a great way for employers to offer their employees a flexible and cost-effective way to manage health expenses.

Employers can set a monthly or annual allowance amount for reimbursement, which can vary depending on factors such as employee class, age, or family size.

The five-step structure of HRAs is the same across the board, and includes setting an allowance amount, employees making healthcare purchases, submitting proof of expenses, employer review and approval, and finally, reimbursement up to the set allowance amount.

Here's a breakdown of the steps:

Employer contributions are tax-deductible and payroll tax-free, and the money employees receive is also free of income taxes as long as they have a health plan that provides minimum essential coverage (MEC).

HRAs offer more flexibility than HSAs, which require a high-deductible health plan.

HSAs provide long-term savings with tax benefits, but HRAs provide more flexibility in terms of reimbursement for health care expenses and premiums.

With an HRA, employees are reimbursed a defined contribution or allowance each month, and they choose a health plan from the Individual Marketplace for coverage.

Unlike group insurance, HRAs allow employees to select their own health plan, giving them more control over their healthcare choices.

Group insurance, on the other hand, gives little flexibility to employees, as the employer selects the plan and pays a set amount each month.

A Qualified Small Employer Plan, also known as QSEHRA, is a great option for small businesses with fewer than 50 employees. It allows employers to reimburse employees for health insurance premiums and medical expenses, and the funds are tax-free.

QSEHRAs are designed to provide more flexibility and freedom for employees to choose their own health insurance plans. This is especially helpful for small businesses that may not have access to traditional group health insurance plans.

The QSEHRA can reimburse employees for insurance premiums, out-of-pocket costs, or both. This can be a significant benefit for employees who may not have access to affordable health insurance options.

Small businesses can use QSEHRAs to provide health benefits to their employees, even if they don't have a lot of employees or resources. This can be a great way to attract and retain top talent.

One of the best things about QSEHRAs is that they are straightforward to set up and administer. Employers can work with an HRA administrator like Take Command to make sure everything runs smoothly.

HRAs and health savings accounts (HSAs) are often confused with each other, but they have key differences. One major difference is that HRAs are employer-owned, while HSAs belong to employees.

HSAs require a high-deductible health plan, which means employees must have a plan with a higher deductible to qualify for an HSA. This is not a requirement for HRAs.

HSAs have annual contribution limits, but HRAs do not. This means that employees can contribute more to their HSA each year, but there is no limit to how much employers can contribute to an HRA.

Here's a comparison of the two:

In contrast to HSAs, HRAs offer more flexibility in terms of funding and reimbursement. Employers can choose to fund HRAs solely, while employees can contribute to HSAs. HRAs also offer more flexibility in terms of reimbursement, as employers can choose to reimburse employees for qualified expenses at any time, while HSAs require employees to submit receipts for reimbursement.

HRAs offer flexibility because employers can decide what healthcare expenses to reimburse, making them perfect for customizing benefits. This flexibility is a major advantage over traditional HRAs, which are employer-funded health reimbursement plans unrelated to any specific health insurance plan.

One key difference between HRAs and FSAs is that HRAs are not insurance, but rather an arrangement between an employer and their workers that allows them to reimburse for health care expenses and premiums tax-free. This is a crucial distinction to understand when choosing between the two.

Here are some key differences between HRAs and FSAs:

Higher premiums and out-of-pocket costs are associated with traditional health insurance plans, which also offer less flexibility and customization in benefits. This can be a drawback for employees who value flexibility in their benefits.

HRAs offer a more flexible and cost-effective solution than traditional health insurance. Traditional health insurance directly covers medical expenses but often comes with high premiums.

One of the main benefits of HRAs is that they provide employees with more control over their healthcare spending. With an HRA, employees can choose their own health insurance plan and receive reimbursements for eligible expenses.

Here are some key differences between HRAs and traditional health insurance:

HRAs can also complement or replace traditional plans, especially for businesses wanting to manage costs effectively. Traditional health insurance often comes with higher premiums and out-of-pocket costs, as well as less flexibility and customization in benefits.

Medicare is a type of health insurance that helps cover medical expenses not covered by Medicare.

Medicare HRAs are designed to help cover the cost of Medicare premiums and other medical expenses not covered by Medicare.

They offer a tax-efficient way for employers to support their retired employees' healthcare needs.

Each type of HRA is highly adaptable to various situations, serving different employer and employee needs.

Understanding how each type functions and its benefits is crucial for making informed decisions about healthcare strategies.

Medicare HRAs are an ideal solution for employers who want to support their retired employees' healthcare needs in a tax-efficient manner.

They help cover medical expenses not covered by Medicare, providing essential support for retirees.

Employers set the rules for HRAs, and less than 50% of employees correctly understand who determines these rules. The employer plan sponsor ultimately decides how to handle certain aspects of the HRA, including what expenses are eligible, when benefits are paid, and when claims must be submitted.

Some common factors determined by the employer include how much will be allocated to employees and what causes the amount to vary, what categories of expenses are eligible for reimbursement, and what happens to funds at the end of the plan year when an employee is no longer eligible, is terminated, and/or retires. These specific HRA rules are outlined in the plan's documentation, which can be found in the document section of the secure BRiWeb.

To maximize HRA benefits, employees should spend smartly and track eligible expenses, which include medical expenses, dental and vision expenses, and wellness programs and preventive care.

Individual eligibility for HRAs is quite flexible. Employers of all sizes can offer Individual Coverage HRAs (ICHRA) to their employees.

To offer an ICHRA, employers must have at least one employee who is not a self-employed owner or spouse of the self-employed owner. This is a requirement for any employer to offer an HRA.

ICHRA works for employers with a remote workforce, especially those with different classes of employees in many states. It allows employers to divide employees into classes, providing benefits and tax-free reimbursements for each employee type.

The ICHRA is available to organizations of all sizes, with no contribution limits. Employers can customize allowances and benefit eligibility with employee classes, making it easier to tailor benefits to their employees' needs.

Here are the key points about ICHRA eligibility:

Note that the ICHRA is only available to employees with an individual health insurance policy. Employees covered by a family member's group policy or an alternative like Medi-Share cannot participate in the benefit.

Eligible reimbursement expenses under a Health Reimbursement Arrangement (HRA) can be quite extensive. The IRS defines these expenses in Section 213(d) of the Internal Revenue Code, and you can find a list of these expenses in IRS Publication 502 and the CARES Act.

Some common eligible medical expenses include copays, hospital expenses, and prescription drugs. Employers can also choose to reimburse premiums only or premiums along with qualified medical expenses.

Here are some examples of eligible medical expenses:

It's worth noting that employers have the ability to place additional restrictions on what is considered an eligible expense for HRA reimbursement purposes, so it's always best to refer to your plan documentation for guidance.

Employers ultimately determine many of the rules for Health Reimbursement Arrangements (HRAs), which can be complicated. The employer plan sponsor sets the rules for certain aspects of the HRA.

Employers decide how much to allocate to employees and what causes the amount to vary. They also determine what categories of expenses are eligible for reimbursement. This means that employers have a significant amount of control over how HRAs work.

Employers must outline the specific HRA rules for each plan in the plan's documentation. If Benefit Resource is administering the plan, a quick reference can be found in the Plan Highlights.

Here are some key factors determined by the employer:

To be eligible for a Health Savings Account (HSA), you need to have a high-deductible health plan. This means your health insurance plan has a high deductible, which is the amount you pay out-of-pocket for medical expenses before your insurance kicks in.

You can contribute to an HSA as both an employee and an employer. Contributions are made within IRS regulations, and there are tax advantages associated with HSA accounts.

Here are the key benefits of having an HSA:

It's worth noting that an HSA is a special purpose bank account that can only be used for approved health care costs.

Policy changes can have a significant impact on HRAs. For instance, legislative updates may introduce new rules or incentives that affect employer contributions.

Employers need to stay informed about policy shifts to make the most of their HRAs. This can help them navigate any changes and ensure their arrangements remain effective.

New rules or incentives introduced by legislative updates may affect the range of eligible expenses. Employers and employees need to be aware of these changes to maximize their benefits.

Staying informed about policy shifts is crucial for employers and employees to make the most of their HRAs.

You can choose to self-administer your HRA, but using an HRA administration platform like PeopleKeep can reduce potential compliance complications and HIPAA privacy violations.

Using an HRA administrator can save you valuable time and money, as they handle day-to-day benefits administration tasks, including compliance functions, documentation storage, and employee reimbursement verification.

The employer who establishes the HRA has the majority of the control, deciding on how much money goes into the plan, whether it can accumulate and roll over from one year to the next, and what the HRA funds are allowed to be used for eligible expenses.

Some common factors determined by the employer include how much will be allocated to employees and what causes the amount to vary, what categories of expenses are eligible for reimbursement, what happens to funds at the end of the plan year when an employee is no longer eligible, is terminated and/or retires, and when claims need to be incurred and submitted for reimbursement.

Here are some examples of employers that can help manage and administer HRAs:

Integrated HRAs are a type of HRA that works alongside a group health insurance plan.

Employers typically offer Integrated HRAs to help cover out-of-pocket costs like deductibles, copayments, and medical expenses not fully paid by the group health plan. This is ideal for businesses looking to enhance existing employee benefits.

An Integrated HRA must be offered alongside a comprehensive health plan, as it is currently defined as a group health plan. This is necessary due to the Affordable Care Act's restrictions on group health plans, which prohibit annual limits on benefits.

Employers can use an HRA administrator to save time and money, as they handle day-to-day benefits administration tasks, including compliance functions, documentation storage, and employee reimbursement verification.

Here are some key features of Integrated HRAs:

Retiree HRAs provide a continuation of benefits in retirement, ensuring former employees still receive support for healthcare costs.

Retiree HRAs are designed for businesses to offer assistance to their retired employees, who may still need help with healthcare expenses.

This setup is available to businesses of all sizes and has no allowance caps or group health insurance requirements.

Annual rollover is permitted if the employer allows it, giving retirees the flexibility to carry over unused funds to the next year.

There are two main types of HRA plans: Qualified Small Employer HRA (QSEHRA) and Individual Coverage HRA (ICHRA). Take Command offers both options, making it easy to choose the right one for your business.

Take Command's HRA plans are designed to fit any budget, and each type serves a specific purpose. For example, QSEHRA is a great option for small businesses, while ICHRA is better suited for larger companies.

Here are the key differences between the two plans:

Overall, choosing the right HRA plan for your business can be a bit overwhelming, but with the right information, you can make an informed decision that meets your needs.

Standalone HRA plans offer a great deal of flexibility, allowing employers to reimburse employees for a wide range of medical expenses.

They're not tied to any specific health insurance plan, which can be beneficial for employers who don't offer group health insurance but still want to provide health benefits to their employees.

Standalone HRAs can be used for retiree benefits or specific purposes, but they don't meet the requirements under the ACA for offering a qualified health plan.

This type of plan is particularly useful for employers who want to provide health benefits to their employees without offering group health insurance.

Standalone HRAs can be used to reimburse a wide range of medical expenses, making them a valuable option for employers who want to offer flexible health benefits.

A PPO, or Preferred Provider Organization, plan offers a network of preferred providers and allows for some out-of-network coverage at a higher cost.

Employees with a PPO plan have more flexibility in choosing their healthcare providers and don't need a primary care physician's referral to see a specialist.

PPO plans often come with deductibles and copayments that can be reimbursed through an HRA, or Health Reimbursement Arrangement.

An HRA is not health insurance, but a reimbursement plan that can complement a PPO or other types of health plans, making comprehensive health care more affordable for employees.

Combining a PPO plan with an HRA can lead to enhanced health benefits coverage, allowing employees to receive reimbursement for out-of-pocket medical expenses.

One of the biggest advantages of Flexible Spending Accounts (FSAs) is the tax advantages on employee contributions. This means you can save money on your taxes by setting aside pre-tax dollars for eligible expenses.

FSAs also allow pre-tax spending on eligible medical expenses, which can really add up. For example, if you're paying for prescription medication or copays, you can use your FSA funds to cover those costs.

Here are some key benefits of FSAs:

Having an HRA can be a great way to offer your employees more control over their healthcare expenses, but it's essential to weigh the pros and cons.

One of the main benefits of an HRA is that it allows employees to use pre-tax dollars to pay for out-of-pocket medical expenses, which can lead to significant tax savings.

HRAs can also be more cost-effective for businesses than traditional group health plans, especially for small businesses or those with a large number of part-time employees.

A major drawback of HRAs is that they can be complex to set up and administer, requiring a significant amount of paperwork and administrative time.

Another con is that HRAs may not provide the same level of comprehensive coverage as a traditional group health plan, which can be a concern for employees with ongoing medical needs.

For a more detailed list of pros and cons, check out our HRA account pros and cons blog.

Employers can tailor health plans to different employee needs with HRAs, offering customization options.

This personalization makes budgeting and forecasting easier for employers, as they know the exact amount allocated for health expenses each year.

Employers set many of the rules for HRAs, determining factors such as how much will be allocated to employees and what categories of expenses are eligible for reimbursement.

Here are some key factors employers determine:

As an employer, you have a significant amount of control over how your company's Health Reimbursement Arrangement (HRA) operates. This is because HRAs offer customization options that let employers design health plans tailored to different employee needs.

Employers can choose which healthcare expenses are eligible for reimbursement, such as medical or dental costs, creating a personalized benefit package. This allows you to cater to the unique needs of your employees.

Employers also benefit from the predictability that HRAs provide, making budgeting and forecasting easier. You know the exact amount allocated for health expenses each year, which supports better financial planning.

Here are some specific factors that employers typically determine when setting up an HRA:

These factors can vary depending on the specific HRA rules for each plan, which are outlined in the plan's documentation.

As a business owner, making the right decision about offering health benefits to your employees can be a daunting task. You want to provide a competitive package that attracts and retains top talent, but you also need to consider your budget and the needs of your diverse workforce.

Employers can offer customization options with HRAs, allowing you to design a personalized benefit package tailored to different employee needs. This means you can choose which healthcare expenses are eligible, such as medical or dental costs.

HRAs make budgeting and forecasting easier, as you know the exact amount allocated for health expenses each year. This predictability supports better financial planning than a traditional health plan or health savings account.

To determine if an HRA is right for your business, consider the following factors. You must have fewer than 50 FTEs and no group health insurance policy to offer a QSEHRA.

An HRA can be a simple way to offer an affordable and flexible health benefit to employees. It provides better cost control with the ability to set a budget-friendly allowance.

To make an informed decision, assess your business's budget and the needs of your employees. If you can afford a traditional group health plan, you may choose an integrated HRA to supplement it. However, if you can't afford a group health insurance plan, a QSEHRA is a strong choice.

Here are some key advantages of HRAs for employers:

The future of HR is exciting, with digital tools making it easier for employers to offer health reimbursement accounts like ICHRAs. Companies like Remodel Health provide technology to streamline plan management, simplifying customization and enhancing flexibility for different employee classes.

Employers are looking for ways to make HRAs more accessible and user-friendly for their employees. This is driving innovation in the industry, with digital platforms emerging to support employers in offering HRAs.

Digital tools are not only making HRAs more accessible but also more efficient. With automated plan management, employers can focus on other aspects of their business while still providing valuable benefits to their employees.

As the industry continues to evolve, we can expect to see even more innovative solutions emerge to support employers in offering HRAs.