Health Insurance

What Is an HRA Account?

HRA stands for Health Reimbursement Arrangement, though many people also call it a Health Reimbursement Account.

An HRA is a type of employer-provided benefit that provides employees with assistance in paying their out-of-pocket medical expenses. Employers fund the accounts, and employees can submit receipts and receive reimbursements without having to pay taxes on the amount that’s reimbursed.

Traditional HRAs, also sometimes called “integrated HRAs,” are considered group health plans and must be offered in conjunction with a group health insurance policy.

What is a QSEHRA?

A QSEHRA, or Qualified Small Employer Health Reimbursement Arrangement, is a type of HRA for groups with fewer than 50 full-time equivalent employees. In contrast to an HRA, you can only offer a QSEHRA if your organization does not offer a group health insurance plan.

To participate in a QSEHRA, employees must have their own health insurance coverage via the individual market or another employer’s plan (e.g., a spouse’s employer-sponsored plan). The employee has to have minimum essential coverage (MEC) in order to receive funds from the QSEHRA. If not, any reimbursements they receive from your QSEHRA while without MEC will be included in their taxable gross income. The QSEHRA benefit is also taxable if their health insurance coverage is provided by another employer on a pre-tax basis.

What are HRA and QSEHRA contribution limits?

Both HRAs and QSEHRAs are funded entirely by employers—employees can’t contribute money to their own HRA accounts. Employees are reimbursed with funds from their HRA or QSEHRA when they submit proof of eligible medical expenses. They can’t access the money otherwise.

For both HRAs and QSEHRAs, the employer decides what expenses are eligible for reimbursement. Some employers allow reimbursement for any expense that the IRS allows, while others will only reimburse employees for deductible, copay, and coinsurance costs associated with their group health plan. Funds from QSEHRAs can also be used to reimburse employees for some or all of the premiums they pay for their health insurance. (Note: as of 2017, HRAs are only allowed to reimburse medical expenses for spouses and dependents who are also covered under the employer’s regular group health insurance plan along with the employee.)

HRAs don’t have contribution limits—the maximum HRA benefit is up to the employer.

If you’re offering QSEHRA benefits, however, you can’t reimburse an employee more than $5,050 in 2018 if they have self-only coverage (up to $10,250 if it’s family coverage). Within that maximum, you can vary the amount you reimburse each employee, but the difference can only be based on their ages and the number of people they’re covering (i.e., it’s okay to reimburse an employee with four family members more than you reimburse a single employee).

Employers can allow unused HRA benefits to carry over from one year to the next, but they aren’t required to do so. And with QSEHRAs, the rollover amount plus the total allowed for the current year can’t exceed the maximum limits set by the IRS for the current year.

Why would I offer an HRA or QSEHRA to my employees?

If you’re offering a group health insurance plan, you may already know that a higher deductible will result in lower monthly premiums. But your employees might not be thrilled with the idea of increasing their out-of-pocket costs—and that’s where the HRA comes in.

Say you currently have a group insurance policy with a $1,000 deductible, and you want to switch to a plan with a $3,500 deductible in order to reduce the monthly premiums. You can then set up HRA accounts for your employees and agree to reimburse them up to $2,500/year for medical expenses that they have to pay out-of-pocket before meeting their deductibles.

This is a win-win for everyone. Your group’s health insurance premiums will be lower with a higher deductible plan, and employees who do end up having to meet the higher deductible are no worse off than they would have been under the old plan because they’ll be able to seek reimbursement from the HRA for up to $2,500 worth of qualifying expenses.

For small businesses, QSEHRAs offer employers an alternative way to provide health benefits to employees without offering a group plan.

Can I offer an HRA or QSEHRA along with an HSA?

Technically, HSAs can’t be used together with HRAs or QSEHRAs. But it is possible to offer both an HRA and an HSA to your employees.

You can offer a limited-purpose HRA, a suspended HRA, a post-deductible HRA, or a retirement HRA, all of which will allow your employees the opportunity to contribute to an HSA as long as they have HDHP coverage. Learn more about how these options work here.

 

Your accountant and health insurance broker can help you make sense of all the rules so that you can determine if an HRA or QSEHRA might be a good option for your employee benefits package.

This article provides general information and shouldn’t be construed as legal, benefits, or HR advice. Benefits and insurance regulations may change over time and may vary by location and employer size. So, please consult a licensed broker or appropriately certified expert for advice specific to your business’s benefits options.