Health Reimbursement Account (HRA)
Table of Contents
Table of Contents
What Is a Health Reimbursement Account (HRA)?
A health reimbursement account (HRA), or health reimbursement arrangement, is a benefit plan that allows your employees to be reimbursed for qualifying out-of-pocket medical expenses, which are defined by the plan but often include co-pays and deductibles. HRAs are employer-funded, meaning that employees cannot contribute to them.
Are Health Reimbursement Accounts Beneficial?
There are several pros and cons to offering an HRA to your employees. A large benefit to the HRA is the tax benefits for both employees and employers. There also aren’t minimum participation or minimum contribution requirements, and the HRA can be used as part of your benefits strategy in order to attract and retain talent. A few of the cons include additional paperwork that must be completed and the lack of rollover to a new plan year.
Pros of a Health Reimbursement Account
- Tax benefits. When employees use HRA funds for qualified medical expenses, the money they use or the money that is reimbursed back to them is tax-free. The contributions made by employers are also tax-deductible, making this an excellent option for both companies and employees.
- No minimum participation or contribution requirements. Setting up an HRA doesn’t depend on how many employees you have or how much money you will contribute. This means you have plenty of flexibility in meeting the needs of your employees.
- Complement other benefits to attract and retain talent. Due to the various types of HRA plans, your company can structure your benefits package differently in order to best attract and retain talent. For example, funds used toward qualified expenses can make the deductible appear to be less than what it is after the reimbursement is factored in.
Cons of a Health Reimbursement Account
- Rollovers typically aren’t permitted. If funds from an HRA are not used by the end of the plan year, they are usually forfeited by the employee. HRA funds cannot be transferred to a different account or cashed out. It’s important for employees to submit their medical expenses before the plan year ends so they can be reimbursed. Companies usually choose a deadline for employees to submit reimbursement requests at the end of the plan year, although some plans allow employees to still submit several months after the plan year ends.
- Possible confusion. Sometimes it may be a bit puzzling for employees to understand exactly what is considered a qualified expense. Some plans exclude costs related to dental and vision, while others include them. If an employee pays for an expense and fills out the required paperwork expecting to be reimbursed but is not, they could end up being disappointed and confused. Employees also need to provide an Explanation of Benefits (EOB) along with their claim in order to prove that it is a qualified expense. It’s important to provide the necessary training and support for employees so they know how to make use of this benefit.
Types of Health Reimbursement Accounts
Aside from the standard type of HRA, which is employer-funded and covers qualified medical expenses, there are several other kinds of HRAs you should be aware of. These include integrated vs standalone, Individual Coverage HRAs, Excepted Benefit HRAs, and Qualified Small Employer HRAs.
Integrated vs Standalone
An integrated HRA is part of a traditional group health insurance plan. Out-of-pocket medical expenses that aren’t fully covered by a plan can be covered by an integrated HRA. A standalone HRA, on the other hand, is not a part of a group health insurance plan. There is generally a fixed monthly amount provided to employees to cover the cost of qualified medical expenses.
Individual Coverage HRA
An Individual Coverage HRA (ICHRA) is for employers with 50 or more full-time or equivalent employees. A company that size comes under the Affordable Care Act, meaning that it can establish ICHRAs that fund employees’ purchase of their own health insurance through the ACA marketplace. By allowing your workforce to choose their own policies and healthcare, you can create an attractive benefits package.
Qualified Small Employer HRA
According to SHRM, qualified small employer HRAs (QSEHRA) allow “Employers with fewer than 50 employees to use pretax dollars to reimburse employees who buy nongroup health coverage. The rules for ICHRAs and QSEHRAs differ. For instance, QSEHRAs have an annual cap on employer payments and reimbursements, while ICHRAs do not.” The QSEHRA option is great for small businesses because it provides affordable health benefits.
How to Implement an HRA Program
Once you’ve designed the ideal HRA program for your employees and have aligned it to your business objectives, the next step is to implement it. The following steps can help to guide you through the implementation process.
Step 1: Distribute Plan Information
The details of the plan should be outlined in your plan documents. These should be distributed and made available to your workforce. You might consider working with a legal expert or broker in order to ensure compliance.
Step 2: Train Your Workforce
Eligible employees need to know which expenses will be covered and how much will be contributed (reimbursement limits). They should be familiar with how the reimbursement approval and management process work in order to avoid pitfalls.
Step 3: Reimburse Health Expenses
Will your company have a third-party vendor manage this process for you, or do you want to review and oversee it internally? Depending on the size of your workforce, you may want to consider working with a vendor who can supervise this for you and help your company stay compliant with current regulations (this includes HIPAA compliance). They usually also supply resources and training.
Whichever option you choose, the submitted requests must be reviewed and paperwork must be verified for compliance before reimbursements are issued.
Take care of your people and protect your business with Eddy
Questions You’ve Asked Us About Health Reimbursement Accounts (HRA)
Still have questions? Send them here – we promise we’ll answer them.
James has worked in the HR field going on 5+ years and has held various positions of leadership. His areas of expertise are in benefits, recruiting, onboarding, HR analytics, engagement, employee relations, and workforce development. He has earned a masters degree in HR, along with a nationally recognized SHRM-SCP certification.