For business owners, offering your employees a health reimbursement arrangement is a no-brainer (in our humble opinion). These tax-advantaged options get you out of the stressful world of the one-sized fits all group plan and provide you with a more customizable approach to health insurance. There are rules and regulations in place to ensure that employees are treated fairly, as well as stipulations for the types of health plans that are covered by an HRA. Let’s look at those.
What is an HRA plan?
HRA Health Plans, HRA plans, HRA health insurance, or HRA healthcare plans refer to the type of health insurance plan that integrates with a health reimbursement arrangement, making it eligible for reimbursement with an HRA.
HRA health plans are a new benefits model that allows businesses to reimburse their employees for health insurance instead of buying it for them. Health care reimbursement isn't taxable; no income tax, payroll tax, or employer tax.
→ Learn more about how an HRA is funded.
→ Compare HRAs vs Group Plans.
→ Wondering if an HRA is health insurance?
What are the types of HRA healthcare plans?
There are several types of HRAs, but there are currently only two types that allow for employers to reimburse employees tax-free for qualified individual insurance premiums:
These are the only health reimbursement arrangements that allow employers to reimburse employees tax-free for health insurance premiums and qualified medical expenses. There are rules and regulations in place to ensure that employees are treated fairly, as well as stipulations for the types of health plans that are covered by an HRA.
How does HRA health insurance work?
HRA health plans are simple to set up. First, a business owner determines a set budget that works for their business. Then, employees choose a health plan that works for them. They can purchase this on our platform with the help of our enrollment team, or on Healthcare.gov or a state exchange. They then are reimbursed on their paycheck.
Depending on their design, HRA health plans can reimburse for premiums only or medical expenses and premiums. Rates can be scaled based on family size and age. With an Individual Coverage HRA, reimbursements can be scaled based on the type of employee. (See ICHRA Employee Classes)
HRAs win over health stipends due to their tax-advantages and the regulations that keep consumers safe.
MEC and QSEHRA: Which HRA health plans can work with QSEHRA?
Before an employee can participate in a QSEHRA, one must provide proof of Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g). MEC is a term that came from the Affordable Care Act.
- Major medical plans: Major Medical plans are those compliant with the Affordable Care Act (ACA) and qualify as Minimum Essential Coverage. If you purchased your plan through Healthcare.gov or your state’s public marketplace, your plan is a Major Medical plan, and your reimbursement through QSEHRA will be tax-free.
- Student insurance
- Your spouse’s plan (varies by QSEHRA plan): If you’re covered by your spouse’s group insurance plan there are some nuances to know regarding premium reimbursement. First, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. Second, most group plans are already paid on a pre-tax basis from your spouse’s paycheck. This is great! However, the IRS doesn’t want you to “double dip” and also get a pre-tax QSEHRA reimbursement, so your QSEHRA claim for your premium may be paid on a taxable basis (plan depending). If you can verify that your premium is paid post-tax by your spouse (very rare), then you can still be reimbursed tax-free through QSEHRA!
- Government plans: Medicare, Medicaid, CHIP (children's health insurance programs), Tricare, and VA Care are all eligible healthcare plans and qualify as Minimum Essential Coverage. If you are on one of these plans and pay a monthly premium out of pocket, those can be reimbursed through QSEHRA tax-free.
- Dental Insurance & Vision Insurance Plans: Monthly premiums paid for individual and dental insurance plans can be reimbursed tax-free through QSEHRA. If you have dental and vision benefits through your spouse’s employer, only the portion of the group premium that is not paid for by your spouse’s company is eligible for reimbursement. In addition, if your spouse pays the premiums for your dental and insurance plans pre-tax, you can only be reimbursed for these premiums on a taxable basis.
- Limited Benefit Plans: Limited Benefit Plans are usually significantly cheaper than Major Medical plans but only provide a fixed amount of benefits (vs. unlimited benefits). These plans include short-term plans, fixed indemnity plans, accident plans, and any other plan that pays a medical benefit. As long as you also have a Minimum Essential Coverage health plan, and the limited benefit plan pays a medical benefit to the provider (not a cash benefit to you), the premiums on these plans can be reimbursed tax-free through QSEHRA.
This post goes into even more detail about the plans that do not meet MEC and/or are not compatible with QSEHRA.
Qualified health plans and ICHRA
The most important thing for employees to do to use a company ICHRA plan is to sign up for a qualified health plan, which basically means it provides coverage of essential benefits such as preventative and wellness services and emergency services, as well as limits on cost-sharing.
The following plans can be integrated with ICHRA.
- Major medical plans purchased on the exchange (Bronze, Silver, and Gold)
- Medicare (Part A+B, or Part C)
- Catastrophic Plans (limited to those under age 30 or must qualify for hardship exemption)
- Student Health Insurance
Learn more about HRA health insurance
If you’re an employee looking for a qualified ICHRA plan, you can shop and compare plans directly at Take Command. For the QSEHRA, check out our comprehensive QSEHRA guide. We wrote this guide about what can be reimbursed, ensuring that you get the most benefits out of the QSEHRA. Employers interested in structuring coverage or comparing options can talk with an expert and get started with a custom design in minutes.
