With six health reimbursement arrangement (HRA) plan types, many benefit broker consultants and employers may be asking the following question: Which HRA plan should I offer?
But before we dive into the details, let’s cover what health reimbursement arrangements (HRA) are.
What are HRAs?
Defined by the Centers for Medicare and Medicaid Services (CMS), “health reimbursement arrangements (HRAs) are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses.”
An HRA is a type of account-based group health plan funded solely by employer contributions. No salary reduction contributions or other contributions by employees are permitted. These plans often reimburse deductibles, copays, coinsurance, and prescription out-of-pocket costs.
Now, it’s important to note that there are currently six different plan types for HRAs, two of which were introduced on Jan. 1, 2020.
What are the six HRA plan types?
The six different plan types for HRAs are structured as follows:
An HRA integrated with a group health plan.
Limited-Purpose HRA: Dental, vision and preventative care expenses only.
Qualified Small Employer HRA (QSEHRA).
Individual Coverage HRA (ICHRA).
Excepted Benefit HRA (EBHRA).
Let’s review each one to help you decide which works best for your organization.
1. An HRA integrated with a group health plan.
To put this type of HRA into perspective, let’s say an employer chooses a high deductible health plan (HDHP) with a $2,000 deductible for a single employee, which results in a lower premium. The employer realizes that covering medical expenses out of pocket is a very high burden for the employee, and they decide to open an HRA to help reimburse deductible expenses. To keep the employer’s exposure to a minimum, the employee will be responsible to pay the first $500 of the deductible with the employer covering the remaining $1,500.
For an employer to offer this type of HRA, the HRA must be paired with a group health plan to satisfy the requirements of health care reform. Employers that do not sponsor a group health plan are not eligible to sponsor this type of HRA.
2. Limited-Purpose HRA.
A Limited-Purpose HRA may only reimburse vision, dental and preventative care expenses.
An employer can offer this type of HRA in conjunction with a group HDHP. This type of HRA is also compatible with a Health Savings Account (HSA). If you currently offer an HSA to your employees, this type of HRA might be right for you.
3. Retirement HRA.
A retirement HRA reimburses medical expenses incurred after retirement. This type of HRA is only available to employees once they have retired.
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a tax-deductible benefit that allows more flexibility for employers who may not be able to afford traditional group health coverage; Similar to integrated HRAs, it's owned and funded by the employer.
According to the U.S. Centers for Medicare & Medicaid Services, “Certain small employers—generally those with less than 50 employees that don’t offer a group health plan—can contribute to their employees’ health care costs through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).”
Below are some additional details:
Employers are only eligible to sponsor a QSEHRA if they do not sponsor any other form of group health plan (including dental, vision and health flexible spending accounts) and employees must be enrolled in some form of minimum essential coverage (MEC) to be eligible for reimbursements.
Employers must provide the benefit on the same terms to all eligible employees; maximum reimbursement amounts may vary only based on age or family size.
QSEHRA is limited in 2021 to $5,300 for single only and $10,700 for family coverage.
According to the U.S. Centers for Medicare & Medicaid Services, an individual coverage Health Reimbursement Arrangement (ICHRA) “is an alternative to traditional group health plan coverage to reimburse medical expenses, like monthly premiums and out-of-pocket costs like copayments and deductibles.”
ICHRAs are more flexible than QSEHRAs with no limit on the reimbursement amount or company size.
Common qualifying expenses can include individual insurance premiums, copays, deductible payments, coinsurance, doctor’s office visits, exams, lab work, hospital visits, and prescription drugs.
Employers of any size may offer an ICHRA including applicable large employers (ALEs) who are subject to the employer mandate. This is different than QSEHRAs, which may also reimburse individual medical premiums, but are limited to non-ALEs who do not offer any other form of group health plans (including dental, vision, and health flexible spending accounts). In fact, a large employer can satisfy both sections of the employer mandate (i.e., the offer of coverage and affordable/minimum value requirements, subject to special rules and calculations) by offering a standalone ICHRA to their full-time employees or offering an ICHRA alongside a traditional group health plan (to different classes of employees).
Below are some additional details:
ICHRAs can be used to reimburse premiums for individual health insurance by employees not offered coverage under an employer group health plan.
Eligible employees must be enrolled in either individual medical coverage or Medicare.
An excepted benefit HRA (EBHRA), provides a sizeable employer-funded account while allowing employees to enroll in their choice of primary health coverage, if any. In fact, employees eligible for the EBHRA may choose not to enroll in any other form of coverage, and to participate in the EBHRA as a completely standalone benefit. For 2021, the maximum reimbursement amount is $1,800.
According to the U.S. Centers for Medicare & Medicaid Services, “this type of HRA isn’t allowed to reimburse premiums for individual coverage, traditional group health plans (other than COBRA or other continuation coverage), or Medicare.”
Employers of any size may offer an EBHRA, including applicable large employers (ALEs) who are subject to the employer mandate. Unlike ICHRAs, the employer must also offer all EBHRA-eligible employees a traditional group health plan in addition to the EBHRA; therefore, an ALE would not be able to satisfy the employer mandate solely by offering an EBHRA.
When deciding which type of HRA to offer your employees, it’s important to speak with a professional to determine which plan is best for your organization. As an additional resource, the U.S. Centers for Medicare & Medicaid Services put together a comprehensive chart to assist with decision-making when it comes to exploring coverage options. Click here to view the chart.
This article also includes excerpts from our blogs “HRAs: The Good, the Basics & the Savings” and “Ring in the New Year With Two New HRAs.” Click the below links to read more scenarios and advantages of each plan type, as well as additional employer information.
Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.
Editor’s Note: This post was originally published to PrimePay’s blog and has been updated for freshness, accuracy, and comprehensiveness.