Health Reimbursement Arrangements (HRAs) are employer-funded health plans that reimburse employees for medical expenses not covered by their standard health insurance. Unlike health savings accounts or flexible spending accounts, HRAs are entirely funded by employers, and employers have the discretion to determine the contribution amounts.
Understanding Health Reimbursement Arrangements (HRAs)
Definition and Structure
An HRA is a type of employer-funded plan that reimburses employees for incurred medical expenses up to a maximum dollar amount determined by the employer annually. Employers can design their HRA plans to cover a wide range of medical expenses, including co-payments, deductibles, and out-of-pocket medical costs. Here is the fundamental structure of HRAs:
- Employer-Funded: Only employers contribute funds to HRAs; employees do not have the option to contribute.
- Reimbursement Basis: Employees pay for qualifying medical expenses out-of-pocket and submit claims for reimbursement.
- Non-taxable Benefits: Reimbursements from HRAs are typically not considered income for the employees, making them tax-free.
Types of HRAs
1. Integrated HRAs
Also known as group coverage HRAs, these are linked to a group health insurance plan provided by the employer. Integrated HRAs are used to cover out-of-pocket expenses such as deductibles and co-pays that are part of the group health plan.
2. Qualified Small Employer HRAs (QSEHRAs)
Specifically designed for small businesses with fewer than 50 employees, QSEHRAs allow these employers to provide non-taxable reimbursements to employees for individual health insurance premiums and other qualified medical expenses.
3. Individual Coverage HRAs (ICHRAs)
Introduced in 2020, ICHRAs permit employers of any size to offer employees a stipend to purchase their own individual health insurance coverage. This type of HRA provides more flexibility to employees in selecting plans that best meet their needs.
Regulatory Considerations
HRAs are subject to a variety of regulatory rules:
- Affordable Care Act (ACA) Compliance: For an HRA to comply with ACA regulations, it must be integrated with a group health plan that meets minimum essential coverage standards.
- HIPAA Privacy: Employers must adhere to Health Insurance Portability and Accountability Act (HIPAA) privacy rules to protect employees’ private health information.
- ERISA Requirements: HRAs are generally governed by the Employee Retirement Income Security Act (ERISA), which sets standards for health plans in the private sector to protect beneficiaries.
Key Benefits of HRAs
- Cost Control: Employers control healthcare costs by setting a fixed annual reimbursement limit.
- Flexibility: HRAs offer employers the flexibility to design plans tailored to the needs and preferences of their workforce.
- Tax Advantages: Both employers and employees benefit from tax savings, as contributions and reimbursements are usually tax-free.
Historical Context and Development
Historical Evolution
HRAs started to gain popularity in the early 2000s as employers sought ways to control rising healthcare costs while still providing employees with robust health benefits. Over time, the regulatory landscape evolved, accommodating various types of HRAs to cater to different employer and employee needs.
Legislative Milestones
- 2002: The Internal Revenue Service (IRS) formally recognized HRAs, providing guidelines for their implementation.
- 2017: The 21st Century Cures Act introduced QSEHRAs.
- 2020: The introduction of ICHRAs offered employers greater flexibility in providing health benefits.
Practical Examples and Use Cases
- Small Business Scenario: A small business with 30 employees opts for a QSEHRA to offer non-taxable reimbursements for individual healthcare premiums.
- Large Corporation Scenario: A large corporation with 500 employees integrates an HRA with their group health plan to cover out-of-pocket expenses like deductibles and co-pays.
Comparison with Related Terms
- Flexible Spending Account (FSA): Unlike HRAs, FSAs are funded by employees through pre-tax payroll deductions.
- Health Savings Account (HSA): HSAs are typically paired with high-deductible health plans (HDHPs) and offer triple tax advantages. Employees and employers can both contribute to HSAs, unlike HRAs.
Frequently Asked Questions (FAQs)
Q: Who is eligible for an HRA?
A: Eligibility for an HRA depends on the plan design and the employer. Typically, full-time employees are eligible, but part-time and seasonal workers may also qualify based on the employer’s discretion.
Q: Can HRA funds be rolled over?
A: This depends on the specific HRA plan design. Some HRAs allow funds to roll over year to year, while others may have a “use-it-or-lose-it” policy.
Q: Are HRA reimbursements taxable?
A: No, HRA reimbursements are generally not considered taxable income for employees.
Q: Can an employee have both an HRA and a Health Savings Account (HSA)?
A: Yes, but the HRA must be structured in a way (such as a limited-purpose HRA) that does not interfere with the eligibility requirements for contributing to an HSA.
References
- Internal Revenue Service (IRS). “Health Reimbursement Arrangements (HRAs).” IRS.gov.
- U.S. Department of Labor. “Health Plans & Benefits: ERISA.”
- Healthcare.gov. “Understanding Health Reimbursement Arrangements (HRAs).”
Summary
Health Reimbursement Arrangements (HRAs) offer a flexible and cost-effective means for employers to provide health benefits to their employees. With multiple types and a range of regulatory considerations, HRAs can be tailored to fit the diverse needs of modern workforces, ultimately leading to enhanced employee satisfaction and financial well-being.
