What is an HRA?
An Health Reimbursement Arrangement, or HRA, is a self-funded benefit plan that reimburses employees for certain medical expenses determined by the employer. Typically, an HRA is designed to help reduce premium costs or limit out-of-pocket expenses. Eligible expenses include health plan deductibles, co-pays, coinsurance, prescription drugs and even individually purchased health plan premiums.
If an HRA is operated in compliance with IRS guidance, employees will not be taxed on the value of their HRA coverage or on reimbursements that they receive from the HRA. The money placed in the HRA is not subject to FICA contributions by either the employer or employee. Additionally, money in the plan is never subject to Federal or State Income Tax as long as it is used exclusively to reimburse the employee and/or their dependents for eligible healthcare expenses as determined by the employer.
A few things all HRA plans have in common:
- ERISA requirements
- Plan document requirements
- Nondiscrimination rules
- Employer sets the plan design
- 100% employer funded – they are self-funded benefits
- Depending on the plan design, can be paired with FSA, LFSA and/or HSA plans
What types of HRA are there?
Integrated HRA – most common
- Employers of any size
- Integrated or tied to group health plan enrollment and expenses
- Typical plans pay deductibles, co-pays, coinsurance or other out-of-pocket expenses
- Employer sets the maximum amount that can be reimbursed
- COBRA rules and premiums applies
Individual Coverage HRA (ICHRA)
- Employers of any size
- Employees must be covered by an individual health plan to be eligible
- Employer sets the maximum amount that can be reimbursed
- Eligible expenses CAN include premiums for individual health plans
- Employers may offer an ICHRA and a traditional group health plan but may not offer employees a choice between the two; each class of employees must be offered one or the other
- Employees may be split into different classes (full-time vs part-time, salaried vs. hourly, etc.)
- All employees in a class must be treated the same, with special rules for age and family size
- Employees on Medicare can be enrolled in an ICHRA at the same time
- COBRA rules and premiums applies
Qualified Small Employer HRA (QSEHRA)
- Employers under 50 total employees
- Employer must not offer any type of group health plan
- All employees are eligible, with some exceptions
- Employer selects the eligible out-of-pocket healthcare expenses, which CAN include premiums for individual health plan coverage
- Employer chooses how much to put into the account, up to the following per plan year:
- $5,850 for employees with single coverage
- $11,800 for employees with family coverage
- COBRA does not apply
Excepted Benefit HRA (EBHRA)
- Employer of any size who also offer a group medical plan
- Designed to reimburse for dental and vision expenses premiums for individual dental and vision plans
- Employer chooses how much to put into the account, up to the following per plan year:
- COBRA rules and premiums applies
Medicare Premium HRA
- Employers with 20 or fewer total employee
- Designed to reimburse Medicare and Medicare supplemental premiums
- Employer sets the maximum amount that can be reimbursed
- Employer MUST offer a group health plan
- Employee MUST voluntarily waive group health plan coverage
- Employee MUST be enrolled in Medicare and/or Medicare supplemental plans
- COBRA does not apply
Coordination with FSAs
An employer may offer both an FSA and an HRA, but expenses cannot be reimbursed under both the HRA and the FSA. In the plan documents, employers specify which account will reimburse first; typically, the HRA pays first and the FSA second, but it is at the discretion of the employer. This is referred to as the "Benefit Order". FSAs and HRAs can also be structured so that specific types of items can only be reimbursed from one or the other, for example, permitting the FSA to cover only vision expenses and permitting the HRA to cover all other forms of medical expense
Coordination with HSAs
An employer may offer both an HSA and an HRA, but there are certain plan design requirements that must be followed in order for the plan to maintain HSA eligibility. HSA plans have minimum employee medical out of pocket rules in order to be considered HSA eligible and as long as the HRA plan design is structured to meet those requirements the HRA and HSA combination is fully compliant.
For 2024 the minimum deductible:
- Minimum deductibles are $1,600.00 for employee only and $3,200.00 for family coverage