HRA Advantages: Is This Account Right for Your Organization?

White House Announces New HRA Plans in 2020

In our last post, we touted the benefits of a health savings account (HSA) and flexible spending account (FSA). But we don’t want to leave the health reimbursement arrangement (HRA) out of the equation! These less common—but similarly beneficial—accounts are a flexible way to help employees pay for health care costs. Read on to learn about HRA advantages and find out if an HRA is right for your company and your workforce.

What is an HRA?

Sometimes known as a health reimbursement account, an HRA is a benefit that employers provide to help employees pay for qualified medical expenses. With an HRA, an employer can offer each employee a stipend of tax-free money (either as uniform coverage or as a monthly allowance) to put toward health care costs.

There are a variety of HRA options, so employers can choose an option that works best for their employees and their bottom line. An HRA can supplement a health insurance plan, and in some cases, employees can use the funds from an HRA to purchase health insurance and pay toward a policy’s deductible.

An HRA is an excellent option for small employers that aren’t financially able to offer group health insurance, or as a way to help employees pay for out-of-pocket medical expenses that insurance won’t cover.

Usually, employers choose to cover some combination of: medical only, medical and prescription, or medical and dental expenses. HRAs can also help pay for family medical expenses.

The Perks of Offering an HRA

We’ll let the HRA advantages speak for themselves.

An HRA can help lower health care costs for employees. Funds can be used toward eligible out-of-pocket health care costs, copayments, deductibles, prescriptions, and more. Since this is an employer-provided account, it does not affect employees’ income.
These plans are super flexible; employers can choose the features of the plan that work best for their employees and budget.
An HRA can help employers control costs by allowing them to choose how much they want to contribute for each employee each year.
There are tax advantages too. All employer-made contributions are completely tax deductible, and reimbursements are tax-free when an employee files a claim.
Employers can use this benefit to round out their benefits package to attract and retain talent.

HRAs of All Shapes and Sizes

There are many different types of HRAs. Some are newer offerings, others have been around for years, and all are beneficial in their own way.

Here’s the current rundown of the different varieties:

Individual Coverage HRA

Introduced in 2019, this new type of HRA allows employers to reimburse employees who purchase health care coverage. This type of HRA can also help pay for medical expenses. There are no minimum or maximum contribution limits or number of employees needed to offer this benefit.

Excepted Benefit HRA

This type of HRA allows employees to take advantage of tax-free reimbursement opportunities, whether an employee participates in the employer-offered group health plan. For an EBHRA, the HRA cannot be an integral part of the health plan or reimburse for premiums of a plan. It must provide benefits that are limited in amount, and must be made available under the same terms to all qualified individuals.

QSEHRA

This HRA is available for employers who do not offer a health insurance policy and have 50 or fewer full-time employees. With this plan, employers can offer $5,150 per single employee or $10,150 for employees with a family.

Group Coverage HRA

Employers can offer this type of HRA even if they already offer a group health plan. In this case, only employees who opt into the health plan can take advantage of the HRA.

One-person, standalone HRA

As the name suggests, the benefits of this HRA must be structured so that only one employee can use this HRA. There are no maximum contribution limits or health plan requirements.

The retiree HRA

This HRA allows retired employees to pay for qualified medical expenses using employer-provided, tax-free funds.

Keep in mind that even within these different varieties, employers still have a lot of flexibility when it comes to designing the details of the account—one of the most appealing HRA advantages! Employers can decide if they want funds to roll over to the next year, decide what IRS-qualified medical expenses they want to cover, who will pay the deductible expenses first (employee or employer), and what the maximum annual reimbursement will be.

Want to learn more to see if an HRA is right for your organization? Let us know here.