To understand where HRAs originated, we get to look back all the way to the Civil War when workers were supported by funds set up by their employers, unions, and community organizations. Workers made weekly contributions to a fund that members could use when they became too sick or injured to work. By the 1900s, the majority of states started selling insurance coverage to employers for workers’ compensation, which brought down employers’ overall expenses.
During the Great Depression, doctors began satisfying payment and services by offering forms of health insurance. World War II, the labor movement, and the tax code all encouraged employer coverage. During the 1960s, insurers remained competitive by offering lower premiums to big employers. Alternatively, by the 1980s, self-insured employer plans began gaining popularity. By the 1990s, cost reduction and an emphasis on employee control gave employers incentive to adapt plans similar to HRAs, since HRAs as we know them today weren’t completely defined yet.
In 2002, the IRS did define HRA criteria under Notice 2002-45 and Revenue Ruling 2002-41. The agency stated that HRAs were employer-provided medical care expense reimbursement plans, in which reimbursements for medical care expenses made from the plan are excludable from the employee’s gross income. The IRS definition also explained HRAs could only be used to reimburse active or former employees, be funded by the employer, and be used for eligible medical care.
Under the 2010 Affordable Care Act (ACA), there were three possible types of HRAs: the integrated coverage (standard) HRA for employers that already offered group health insurance, the retiree HRA for retired employees to pay for medical costs, and a dental/vision coverage HRA. Then, in 2017, the government introduced the Qualified Small Employer HRA (QSEHRA) for employers with less than 20 full-time (or full-time equivalent) employees, allowing them to offer the HRA instead of group coverage.
Most recently, in June 2019, the government announced two new types of HRAs available for 2020: The Individual Coverage HRA (ICHRA) and the Excepted Benefits HRA (EBHRA). The ICHRA allowed all employers, no matter the size, to reimburse employees for health care expenses. For ICHRA participation, an employee is also required to have individual health insurance. Employers, however, can’t offer ICHRA and group insurance to the same employee.
The EBHRA, on the other hand, was intended to cover non-primary medical expenses like dental care, vision care, long-term care, and COBRA coverage premiums for employers that offer group health insurance, but want to control costs and increase options for employees.
All these updates to HRAs are part of a movement to put consumers in control of their health care and give employees and employers more ways to save money. Just as employer and union funding started to pave the way to help workers and protect businesses back in the Civil War era, HRAs have continued evolving to do the same—just under a range of different names.