Health Reimbursement Arrangements (HRAs) are tax-advantaged accounts designed to reimburse individuals for qualified healthcare costs. Introduced by the IRS in 2002, HRAs are benefits that employers can offer to current and former employees, including retirees.
Over time, legislative and regulatory changes have updated HRA rules and introduced new types, such as Group Benefit HRAs, Individual Coverage HRAs (ICHRAs), Qualified Small Employer HRAs (QSEHRAs), and Excepted Benefit HRAs (EBHRAs).
Funding
HRAs are funded by employers to reimburse employees for eligible expenses. These contributions are not considered wages and do not affect employee income tax or payroll tax calculations.
Eligible Expenses
Eligible expenses for HRAs depend on the specific HRA type. For Group Benefit HRAs, eligible costs typically include Section 213(d) expenses for diagnosing, treating, mitigating, curing, or preventing diseases and medical conditions.
For ICHRAs, QSEHRAs, and EBHRAs, eligible expenses generally include premiums for qualified individual insurance coverage and specified Section 213(d) expenses at the employer’s discretion.
Employees should refer to their Summary Plan Description (SPD) for detailed information about eligible expenses covered by their HRA. The SPD outlines all plan terms and conditions, including plan start and end dates, qualified expenses, and claim submission procedures.
Plan Types
Group Benefit HRA
Group Benefit HRAs integrate with a company-sponsored group health plan. Employees must enroll in the group health plan to receive HRA reimbursements.
Important Need-To-Knows
- Eligibility/Qualifying: Available to current employees (and possibly former employees in certain situations). The employer must offer a group health plan, but it does not need to meet cost-sharing minimums like those required for High Deductible Health Plans (HDHPs).
- Contributions: There is no federal limit, but the employer must set a contribution limit and a specific timeframe.
- Qualifying Medical Expenses: Employees can claim unreimbursed expenses that meet IRS Code 213(d) definitions. Employers can restrict eligible expenses, so refer to the SPD for details.
- Unused Balance: Unused funds may carry forward depending on the plan setup, but employers can limit the total amount. Generally, unused funds are returned to the employer if an employee loses qualifying coverage or leaves the company.
Individual Coverage HRA (ICHRA)
ICHRA allows employers to help employees purchase individual market health insurance coverage instead of providing a group health plan.
Important Need-To-Knows
- Eligibility/Qualifying: Available to current employees (and possibly former employees in certain situations). Employees must enroll in individual market health coverage that meets Minimum Essential Coverage (MEC) requirements.
- Contributions: No federal limit, but employers must set plan limits on reimbursement amount and timeframe. ICHRA terms must be consistent within the same employee class but may vary by age and family size.
- Qualifying Expenses: ICHRAs reimburse premium costs for individual market health coverage and, at the employer’s discretion, qualified medical expenses under IRS Section 213(d). Depending on the setup, they may also cover dependents’ premiums and expenses.
- Unused Balance: Unused balances may roll over, but employers can limit the total amount. Generally, unused funds are returned to the employer if an employee loses qualifying coverage or leaves the company.
Qualified Small Employer HRA (QSEHRA)
QSEHRAs enable small employers to help employees pay premiums for individual market health insurance that meets MEC guidelines. Employers may also choose to reimburse qualifying medical expenses under IRS Section 213(d).
Important Need-To-Knows
- Eligibility/Qualifying: Employers must have fewer than 50 full-time-equivalent employees and not offer group health coverage. Employees must enroll in individual or family market coverage that meets MEC requirements.
- Contributions: Federally mandated annual reimbursement limits apply. Employers may contribute less, but QSEHRAs must be available to all employees on the same terms, though amounts can vary by age and family size.
- Qualifying Expenses: QSEHRAs reimburse premiums for qualified health insurance and may also cover medical expenses under IRS Section 213(d). They can also cover dependents’ premiums and expenses.
- Unused Balance: Unused balances may roll over, but employers can limit the total amount. Carried-over funds count against the next year’s maximum limit. Generally, unused funds are returned to the employer if the employee loses qualifying coverage or leaves the company.
Excepted Benefit HRA (EBHRA)
Established in 2019, EBHRAs cover “excepted” benefits, such as copays, deductibles, and premiums for vision and dental care, as well as COBRA insurance, long-term care, and short-term care. Employers of any size can offer EBHRAs.
Important Need-To-Knows
- Eligibility/Qualifying: Available to current employees (and possibly former employees in certain situations). Employers can offer EBHRAs without requiring employees to enroll in group health coverage.
- Contributions: Federally mandated annual limits apply, but employers can set lower limits.
- Qualifying Expenses: EBHRAs can reimburse medical expenses under IRS Section 213(d). They cannot cover premiums for individual health coverage, Medicare, or non-COBRA group health coverage. Employers can restrict eligible expenses.
- Unused Balance: Unused balances may roll over, but employers can limit the total amount. Generally, unused funds are returned to the employer if an employee loses their coverage qualification or leaves the company.
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