An HRA, or a health reimbursement arrangement, is a type of employer-sponsored health benefit that allows you to reimburse your employees for their medical expenses, such as doctor visits, prescriptions, hospital bills, and sometimes even health insurance premiums. Unlike a health savings account (HSA) or a flexible spending account (FSA), an HRA is funded entirely by you, the employer, and does not require any employee contributions. This means that you have more control over how much you spend on health care for your employees and how you design your HRA plan.
How Does an HRA Work?
An HRA is not an account that your employees can access directly. Rather, it is a reimbursement arrangement between you and your employees. You decide how much money you want to allocate to each employee’s HRA per year, up to the IRS limits. You also decide what types of medical expenses are eligible for reimbursement under your HRA plan. Your employees pay for their health care costs out of their own pocket or with their own insurance, and then submit proof of payment to you or a third-party administrator. You then reimburse them for the eligible expenses, either by check, direct deposit, or debit card. The reimbursements are tax-free for your employees, as long as they have minimum essential coverage (MEC), such as an individual or group health plan.
What Are the Benefits of Offering an HRA?
Offering an HRA can have many advantages for you as an employer, such as:
- Saving money on taxes: You can deduct the reimbursements you make through your HRA as a business expense, reducing your taxable income. You also save on payroll taxes, as the reimbursements are not subject to Social Security and Medicare taxes.
- Attracting and retaining talent: You can provide a valuable health benefit to your employees without having to offer a traditional group health plan, which can be costly and complicated to manage. You can also customize your HRA plan to suit the needs and preferences of your employees, giving them more flexibility and choice in how they use their health care dollars.
- Simplifying administration: You do not have to deal with insurance companies, claims, or networks when you offer an HRA. You only have to set up the plan, communicate it to your employees, and process the reimbursements. You can also outsource these tasks to a qualified HRA provider who can handle the compliance and recordkeeping for you.
What Are the Types of HRAs?
There are different types of HRAs that you can choose from depending on the size and structure of your business and the type of coverage you want to offer to your employees. Some of the most common types are:
- Qualified Small Employer HRA (QSEHRA): This type of HRA is designed for small businesses with fewer than 50 full-time equivalent (FTE) employees who do not offer any group health plan. A QSEHRA allows you to reimburse your employees for their individual health insurance premiums and other qualified medical expenses, up to $5,450 per year for single coverage and $11,050 per year for family coverage in 2022.
- Individual Coverage HRA (ICHRA): This type of HRA is available for businesses of any size who want to offer individual health insurance to their employees instead of a group health plan. An ICHRA allows you to reimburse your employees for their individual health insurance premiums and other qualified medical expenses, with no annual or monthly limits. You can also vary the reimbursement amounts based on different classes of employees, such as full-time, part-time, seasonal, or geographic.
- Excepted Benefit HRA (EBHRA): This type of HRA is available for businesses that offer a group health plan but want to provide additional benefits to their employees. An EBHRA allows you to reimburse your employees for certain excepted benefits, such as dental and vision care, short-term disability insurance, and COBRA premiums, up to $1,800 per year in 2022.
How to Start an HRA
If you are interested in offering an HRA to your employees, here are some steps you need to take:
- Choose the type of HRA that best suits your business goals and budget.
- Determine the amount of reimbursement you want to provide to each employee or class of employees per year.
- Decide what types of medical expenses are eligible for reimbursement under your HRA plan.
- Notify your employees about the availability and terms of your HRA plan at least 90 days before the start of the plan year or when they become eligible.
- Set up an account with an HRA provider who can help you administer and manage your HRA plan.
- Review and approve the reimbursement requests from your employees and issue the payments in a timely manner.
Conclusion
An HRA is a great way to offer health benefits to your employees without breaking the bank. It can help you save money on taxes, attract and retain talent, and simplify administration. It can also give your employees more flexibility and choice in how they use their healthcare dollars. To learn more about how an HRA can benefit your business, contact Vesta Employee Benefit Solutions today!