Health insurance options have always been complex, but with rising healthcare costs, it seems that finding good health insurance is more complicated than ever. There are many different options for paying for healthcare now available, including Affordable Care Act (ACA)-compliant plans, small and large group plans, and outside-of-the-box options for those looking for novel ways to reduce healthcare costs.
One of those options is a health reimbursement arrangement (HRA), which is ideal for employees of small businesses who are looking for some healthcare coverage. An HRA is also a good option for employers who may not be able to afford small group plans, but who would like to offer some health benefits to employees.
What is a health reimbursement arrangement (HRA)?
A health reimbursement arrangement (HRA) is a health benefit that employers can offer where they reimburse employees for out-of-pocket medical expenses and/or health insurance premiums. HRAs are approved by the IRS, funded by employers and tax-advantaged health benefits that may serve as an alternative for a health insurance plan.
Employers can offer their employees a monthly allowance of tax-free money that employees can use to cover health insurance premiums or to pay for any other healthcare services they may need. When employees spend money on those health services, they can be reimbursed by the employer up to the allowance amount. Some expenses that may qualify for HRA reimbursement include:
- Individual health insurance, dental, or vision premiums
- Money paid toward’s a health plan’s deductible
- Health insurance copays
- Doctor office visits
- Prescription medications
- Nonprescription medications (usually a doctor’s note is required)
- Travel costs (per mile) incurred for receiving eligible health care
While some businesses may offer an HRA as an additional benefit to health insurance (to cover medical expenses that may not be covered by insurance), they are often leveraged by small businesses who can’t afford small group health insurance. Instead, small businesses can attract talent by offering this allowance to employees — up to an amount it is able to cover. Another benefit for small business owners is that employees are reimbursed after medical expenses are incurred, helping employers retain control over cash flow.
How does an employee use an HRA?
Great question! The process is fairly simple and follows a five-step structure:
- Business hooses an allowance amount — A small business is free to choose the maximum amount of tax-free money employees can have reimbursed each month.
- Employees incur health care costs — Employees pay for healthcare services, health insurance premiums, and/or healthcare products each month.
- Employees submit proof — After paying for healthcare-related costs, employees must submit documentation of expenses incurred for HRA-qualified expenses. This may be in the form of receipts or explanations of benefits.
- Business reviews documentation — The business will review proof of employee expenses for HRA-qualified expenses. The business must be able to see 1) date of sale, 2) the service/product, and 3) the amount. Where the business has documentation of those items and the expense is HRA-qualified, it will approve the expense.
- Employees are reimbursed — Once an expense is approved, the business will reimburse the employee from their allowance up to the maximum allowance amount. After that point is reached, the employee cannot receive further payments until the following month.
In some cases, HRAs can be rolled over. Employers can choose HRA plans that allow balances to roll forward either monthly or yearly, though some may have annual allowance caps. Employers can also elect to not allow rollovers. Employers can also choose between one-person stand-alone HRAs and group coverage HRAs. Employers can also set up HRAs to be accessible to employees after retirement.
What types of HRAs are available?
There are several different types of HRAs available to employers, depending on what they would like to offer to employees. Here are some of the main HRAs:
The qualified small employer HRA (QSEHRA)
The QSEHRA is one of the most popular HRAs and is only available to small businesses with fewer than 50 employees. The QSEHRA allows small businesses to offer allowance amounts that differ based on family size.
The individual coverage HRA (ICHRA)
The ICHRA works is similar to the QSEHRA, but it has fewer restrictions. Any business can use an ICHRA, no matter how big or small. The ICHRA has no contribution limits and employers can offer different allowance amounts depending on employee classes. ICHRAs can only be used by employees that have individual insurance and cannot be used by those who are covered under another group policy (Medi-Share or a family member’s group policy). Medi-Share couldn't participate.
The group coverage HRA
Group coverage HRAs are used by businesses that also offer a group health insurance policy. These HRAs can be used to cover items that are not covered under the group policy, including the deductible. Group coverage HRAs are available to businesses of any size.
Dental/vision HRA
Employers who may offer health insurance but do not offer dental or vision coverage can provide these benefits to employees through a dental/vision HRA. This type of HRA enables an employer to make reimbursements exclusively for these expenses.
What else can small businesses offer?
While HRAs can be a solid benefit for employers to offer employees, there are other options available. Decent now offers plans to help small businesses provide affordable, comprehensive health insurance coverage to employees.
Technology companies and businesses that service technology companies in the Austin, Texas area are now able to purchase health plans from Decent. Decent enables small business owners and entrepreneurs to band together to purchase healthcare to achieve some of the same advantages previously only available to large corporations. Ready to offer competitive benefits to your employees? Get started today!
