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Health Reimbursement Arrangements (HRAs) are a great opportunity for employees to save, manage and spend employer-provided
When it comes to choosing the right HRA for your company, there are many choices. Apart from a traditional HRA, there also are Qualified Small Employer HRAs (QSEHRAs) and Individual Coverage HRAs (ICHRAs).
So what's the difference? Traditional HRAs are integrated with a traditional health insurance plan. They can be designed to cover deductibles, coinsurance, copays, uninsured medical expenses or specific expenses like pharmacy only. For this type of plan there are no minimum or maximum contribution limits.
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ICHRAs work very similarly to traditional HRAs. Employers select an amount that they want to reimburse employees on a tax-exempt basis, based on an annual maximum set by the employer. For employers with 50 or more employees, they must offer "affordable" reimbursement amounts. Employees must have individual health insurance coverage to qualify and cannot be eligible for employer-sponsored plan. Employees can use funds to pay for individual health insurance costs (including premiums) and related medical expenses.
ICHRAs can be used for a large variety of plans, but do not apply to short-term coverage or coverage consisting only of
For QSEHRAs, employers must have 50 or fewer employees. The maximum dollar amounts for employer contributions are adjusted each year. Employers must stay within the maximum statutory limits to make sure the plan is qualified. Like ICHRAs, QSEHRAs cover health insurance premiums, medical services, or eligible medical products.
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The biggest difference between a QSEHRA and the ICHRA or HRA is how the employees pay for these expenses. In the case of a QSEHRA, employees pay the insurance company or medical bill directly and then submit eligible claims to get reimbursed by their employer. These are considered reimbursements, and as such, are (almost always) tax-free for employees and employers.
The other differences are around contributions and eligibility. Employers offering a QSEHRA can decide what they'll contribute to their employees' health care costs. It's up to an annual maximum that is set by the IRS, which is $5,450 per single employee and $11,050 per employee with a family in 2022. For ICHRAs and HRAs, employers can contribute the amount of their choosing.
Regarding eligibility for QSEHRAs, all full-time employees are automatically eligible. Employers can choose to include part-timers as well, but they cannot offer group health insurance and a QSEHRA.
