HRA reimbursement rules for employers are important to know before administering a health reimbursement arrangement (HRA) like ICHRA (individual coverage HRA) or QSEHRA (qualified small employer HRA). Here are the HRA rules for employers you'll want to remember.
Tax-advantaged tools like ICHRA and QSEHRA are a great way to offer quality benefits to your team and cost control and predictability for your business. They operate in similar ways; both models are based on reimbursing employees for health insurance rather than buying it for them.
Administering an HRA is quick and easy with the right HRA administrator software (like ours!). Here are a few of the HRA rules for employers that need to be followed when rolling out this employee health benefit.
In this list we will go through HRA rules for employers that pertain to ICHRA, QSEHRA or both.
HRA rules for employers
Company size
Generally, any sized employer can offer an HRA. While ICHRAs are available to employers of any size, its predecessor, QSEHRA, is intended only for companies with fewer than 50 employees who would not previously have been required to offer health insurance.
Contribution limits
ICHRA is not subject to any contribution limit in terms of reimbursement rates, but QSEHRA has a cap, which increases each year. 2022 QSEHRA maximum limits are $5,450 for an individual ($454.16/month) and $11,050 for families ($920.83/month).
HRA business owner eligibility
Whether or not self-employed owners can participate in an HRA depends on how the plan and business are set up. In order for a business owner to participate in a QSEHRA, they must be considered an employee of the business. Since S-corp owners are not employees, they typically cannot participate in a QSEHRA. Partners and sole proprietors can participate under certain loopholes — if a partner or sole proprietor’s spouse is a W-2 employee, then the partner or sole proprietor can participate in the HRA as a dependent of the spouse.
Class eligibility (ICHRA only)
HRAs must be offered equally and fairly to all employees, but the way QSEHRA and ICHRA approach this is different. While QSEHRA eligibility can only be scaled based on family size or age, ICHRA offers a greater deal of efficiency with its class feature, which allows employers to divide employees up into custom classes that receive varying rates of reimbursement. Employers can offer ICHRAs to all eligible employees, or to only certain classes of employees. There are some special rules, but in general, individual classes are determined by job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One rule that stands out here is that while ICHRA can be offered to one class and a group plan offered to another, an individual cannot be offered both.
→ Deep dive into common HRA compliance issues.
→ Read more about Employer HRA Contributions.
HRA reimbursement rules
HRAs need to be set up as a formal health plan under IRS and ACA guidelines. Employers cannot casually reimburse or expense out medical costs — otherwise, they could face fines. Using an ICHRA or QSEHRA administration tool will keep you out of trouble and both HRAs will lend tax-advantages to help save on benefit costs.
HRAs and HSAs
HRAs and HSAs, which are funded both by the employee and the employer, can be used together, but there are several account rules. An ICHRA has to be set up to reimburse only premiums in order for the employee to make contributions to their HSA — an employee cannot “double dip” by using the HSA and employer reimbursements to pay for medical procedures. Employees can opt into that set up on an ICHRA; for QSEHRA, an employer has to offer that set up to all of his employees or to none of them. The IRS also determines the criteria for HDHP plans that offer HSAs.
HRA Administration
Employers are strongly advised not to manage their own HRA plan, due to federal privacy requirements. Of course, employers have to verify that employees are using funds to pay for health insurance and medical expenses — but having employees submit receipts risks fines for HIPAA violations. It’s best for employers to place administration of plans into someone else’s hands. For more information on our HRA administration, take a look at our platform demo for HRA administration.
Need help understanding HRA rules for employers?
We are here for you! We know that these HRA account rules can be confusing. Just chat with us on the bottom right hand corner of your screen. We'd be happy to clear up any confusion.
Plus, check out our new HRA Guide that will walk you through all the ins and outs of health reimbursement arrangements.
This post was originally published in 2022 and has been updated for 2023 with the latest HRA updates.
