Many workers value employers who offer numerous employee benefit programs. This can range from flexible working hours and paid time off, to health insurance and parental leave . A benefits package improves employee morale, boosts productivity, retention and loyalty. In fact, many employees consider the employee’s benefits package when applying for jobs rather than the salary.

So, it’s essential for employers, especially small businesses, to offer employee benefits. However, employees prefer particular benefits, depending on the work environment. Therefore, employees should identify suitable benefits to increase employee satisfaction.

When looking at health benefits, businesses should consider cost, health services provided, and flexibility, among other factors. 

Health reimbursement arrangement (HRA) is a popular option for employee health benefits. Here’s all you need to know about HRA’s and how to qualify.

What is a Health Reimbursement Arrangement (HRA)?

HRA is an employer-funded health benefit plan that reimburses employees for qualified medical expenses. 

All the reimbursements made through this plan are tax-free. HRA is funded by the employer and not the employee – this means employees don’t contribute a cent to this plan. The employer decides the amount that goes into an HRA plan, and employees can only claim up to that amount. 

Employers group their employees into different classes, and those in the same class receive the same HRA benefits. Additionally, employees cannot claim a reimbursement in advance. Instead, they must incur the expenses before seeking reimbursement. 

However, if the employer offers an HRA credit card, employees may receive a reimbursement at the time of service. 

Also, the HRA plan allocates a specified amount to an employee. If they incur more expenses than the allocated funds, they’ll have to pay for the extra out of their pockets. 

How a business can qualify for HRA

There are some requirements for HRA. However, eligibility requirements vary depending on the type of HRA an employer chooses. Ideally, the plan is only meant for small businesses with less than 50 employees. 

The first thing an employer should do is decide the type of HRA they want to offer to their employees. Then look at the eligibility requirements. 

Let’s look at the various types of HRA’s and some of the qualifications for businesses.

Types of HRA plans

1. Qualified small employer health reimbursement arrangement (QSEHRA)

A QSEHRA is a small business employee benefits plan that helps repay medical expenses or offset health insurance coverage.

The internal revenue service (IRS) sets the yearly limits for QSEHRAs. 

Reimbursements for this type of HRA are limited to $4950 per year. If the plan covers the employees’ families, the payment limits are $10000 per year. 

Employers can offer different allowance amounts based on the employee and their families. 

Some of the qualifications for a QSEHRA include;

  • The business must have less than 50 full-time employees (businesses can also feature part-time employees as long as the benefits are equal to those of full-time employees)
  • Should not be offering a group health plan like a flexible spending account
  • The employer must offer the same terms to all full-time employees (reimbursement amounts may vary depending on age and the number of beneficiaries)

Small businesses can start a QSEHRA at any time. On the other hand, employees should have qualifying health coverage to qualify for a QSEHRA. QSEHRA contribution amounts roll over to the next month if not claimed by the employee. 

2. Individual coverage HRA (ICHRA)

Although it has fewer restrictions, ICHRA works just like the QSEHRA. Businesses of all sizes can participate in this coverage, unlike QSEHRA, which is limited to employers with less than 50 employees. 

There are no contribution limits for ICHRA. 

Additionally, employers can give different allowances according to employee class. Employers may exclude certain employees from an ICHRA based on particular criteria. 

ICHRA is unique in that it enables employees to pay for individual health insurance premiums and not the group coverage from the employer. This HRA is still new in the industry, having started in 2020.

3. Excepted benefits HRA (EBHRA)

Employers offer EBHRA in conjunction with a group health plan. EBHRA reimburses employees for excepted benefits like deductibles, copays, and premiums for dental and visual.

Additionally, it may cover long-term care, COBRA, and short-term care. 

Employers wishing to offer EBHRA must provide the same terms to all employees. Annual reimbursement limits for EBHRA are capped at $18000. Unused contributions are rolled over from year to year.

An employer should consider the impact of EBHRA on existing benefits like health HSA’s and FSA’s before implementing this plan.

4. Integrated HRA

An integrated HRA, otherwise known as group coverage HRA (GCHRA), is available to employers or businesses of all sizes, offering a group health insurance policy. This means the HRA only benefits employees who opt into the group health insurance policy.

Generally, an integrated HRA reimburses out-of-pocket medical expenses. 

Additionally, employers can adjust allowance amounts based on employee classes. There are no allowance limits, unlike other HRA’s.

Benefits of Health Reimbursement Arrangement (HRA)

HRA’s are beneficial not only to the employees but also to the business. Some advantages of a health reimbursement arrangement include;

  • Lowering health costs: Employees can use funds from the HRA to settle out-of-pocket medical and dental expenses, co-payments, prescriptions, deductibles, and more. This employer-funded account does not affect employee income.
  • Tax advantages: All contributions made by the employer towards the arrangement are tax-deductible. Also, all reimbursements are tax-free.
  • Control costs: Employers can use various HRA’s to control costs. For instance, an employer determines the contribution amount for each employee based on class.
  • Flexibility plans: Each HRA plan has different requirements, both for the employer and employee. Therefore, businesses can choose an HRA that suits their budget and employee requirements.
  • Attract and retain talent: Just like any other employee benefits package, employers can use HRA to attract and retain top talent in their industry. 

Final thoughts on HRAs

Health Reimbursement Arrangements (HRA) have evolved in recent years, with more options being introduced to allow more flexibility. The employer sponsors this benefit plan, and all the contributions and reimbursements are tax-free. 

However, businesses must meet specific qualifications to offer HRA to their employees. The qualifications vary depending on the type of HRA plan they choose. For instance, employers eligible for QSEHRA should have 50 or fewer employees. The benefits of HRA’s include flexibility, tax advantages, and lower health costs for employees. Employers should seek advice from employment lawyers before implementing a particular type of HRA.