HRA contributions are a great way for employers to contribute to health insurance. HRA contributions for the popular Qualified Small Employer HRA or the Individual Coverage HRA can work with a wide range of budgets and can be used to reimburse different types of things. Let's dig in.
How do HRA contributions work?
Unlike HSAs, an HRA (health reimbursement arrangements) is based off of contributions from the employer only. You may be wondering about how HRA contribution limits work, what the limits are, where the contribution actually comes from…let’s look at those!
It's a little misleading to refer to these as HRA contributions. Since health reimbursement arrangements are inherently arrangements, not accounts, there is no pre-funding with employer contributions. The funds are simply reimbursed when a cost is incurred. That means that if an employee doesn't use all of the funds, the employer can keep the rest.
HRAs are not pre-funded accounts, they are reimbursements.
Employers reimburse for premiums and medical expenses on a tax-free basis, and the employee chooses a plan that fits their needs. Employees are then reimbursed when they submit a claim.
→ Read more about Employer HRA Contributions.
There are a few HRAs available, but the newest (and dare we say, best) around are the ICHRA and QSEHRA. Here's how they work, in a nut-shell.
- Employers determine monthly rate to reimburse
- Employers decide what to reimburse, i.e., health insurance premiums, medical expenses, or coverage on spouses' plans
- Money is reimbursed for expenses/premiums after they are incurred and receipts are provided
- Employees must have health insurance (minimum essential coverage for QSEHRA and qualified health plans for ICHRA) to participate
- HRA contributions are tax free for both employee and employer
HRA contributions are tax-free for both employee and employer, making it a win-win.
How do employer contributions to health insurance work?
For traditional employer sponsored health insurance, employers typically don't cover the entire cost, sharing the burden with their employees. While group plans typically only cover around 83% of premiums for singles and 74% of premiums for families* (with the rest coming out of their employees’ paychecks), the average national reimbursement rates of our clients based on 45-year-old employees was $448.39 per employee per month, which covers 147% of lowest cost bronze plans and 122% of lowest cost silver plans.
This means that HRA contributions cover premiums better than employer contributions to health insurance on group plans.
This varies per state, but an overwhelming majority reimbursed more than local plan premiums with the exception of five states that still had percentages well above group plan premium coverage.
For those on small group plans, the burden on employees is even greater, with more than 35% of employees footing more than half the bill, according to The Employer Health Benefits 2019 Summary of Findings. Yikes!
(See more in our ICHRA report).
What is the average percentage employer contribution health insurance?
Although the ACA does not specifically call out a set amount that employers are required to contribute for health coverage, many insurance carriers or states require employers to cover at least 50 percent of the premium for employee-only coverage.
What is the maximum for HRA contributions?
- While the ICHRA does not have annual contribution limits, the QSEHRA does.
- While there aren’t any contribution limits, there is the issue of how little you can actually contribute. The minimum amount is determined by the issue of ICHRA affordability and how the HRA interacts with premium tax credits.
- The 2021 contribution limits for QSEHRA are $5,300/year for individuals. For a family: $10,700/year.
- All QSEHRA reimbursements are subject to annual maximums and become available to employees on a monthly basis. This means employees can’t take the full annual amount in January—instead, the funds become available to employees each month.
Employer vs Employee contributions
Unlike HSAs, HRAs are funded entirely by the employer. Employees are not able to contribute. The account is also owned by the employer, so the funds stay with the employer if an employee leaves the company.
Still need help with HRA contributions?
We are so excited about HRAs and all the benefits they offer, that we wrote comprehensive, in-depth guides to the ins and outs of the most popular versions.
- Here’s our guide to the individual coverage HRA.
- Here’s our guide to the qualified small employer HRA.
Don't hesitate to chat with us if you have any questions! That's what we're here for.
