What is an HRA? Health Reimbursement Arrangements (HRAs) are tax-advantaged arrangements that reimburse individuals for qualified healthcare costs. HRAs were first acknowledged by the IRS in 2002 as benefits that employers could offer current and former employees, including retirees.
Legislative and regulatory activity has since modified some of the rules about HRAs and created new types, including Group Benefit HRAs, Individual Coverage HRAs (ICHRAs), Qualified Small Employer HRAs (QSEHRAs), and Excepted Benefit HRAs (EBHRAs).
Employers fund HRAs to reimburse employees for qualified expenses. Contributions are not included in wages and do not affect income tax and payroll tax calculations.
Eligible expenses for HRAs vary based on the HRA type. For Group Benefit HRAs, qualified healthcare costs typically involve Section 213(d) expenses for the diagnosis, treatment, mitigation, cure, or prevention of diseases and medical conditions affecting any body part.
For ICHRAs, QSEHRAs, and EBHRAs, eligible expenses typically include premiums for qualified individual insurance coverage and, at the employer's discretion, certain Section 213(d) expenses.
Employees may refer to the Summary Plan Description (SPD) to learn more about the eligible expenses covered by their HRA. The SPD document should outline all plan terms and conditions for participants and beneficiaries, including the plan start/end dates, qualified expenses, how to submit a claim, etc.
HRA Plan Types
Group Benefit HRA
Group Benefit HRAs are integrated with a company-sponsored group health plan. In other words, employees must be enrolled in the group health plan to receive HRA reimbursements.
Individual Coverage HRA (ICHRA)
ICHRAs let employers help employees purchase individual market health insurance coverage instead of providing them with a group health plan.
Qualified Small Employer HRA (QSEHRA)
QSEHRAs enable certain small employers to help employees pay premium costs for individual market health insurance policies that meet Minimum Essential Coverage (MEC) guidelines. At the employer's discretion, QSEHRAs can also reimburse qualifying medical expenses under IRS Section 213(d).
Excepted Benefit HRA (EBHRA)
Established in 2019, EBHRAs are more limited in scope. Employers of any size may offer an EBHRA, which covers “excepted” benefits only, such as copays, deductibles, and premiums for vision and dental care. EBHRAs can also cover COBRA insurance, long-term care, and short-term care. If offered, they must be available to every employee on the same terms.
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