Employers nowadays are expected to provide health insurance to their employees as one of the many benefits offered. However, for many small and mid-size businesses, traditional insurance plans may be too costly or impractical to implement. One alternative solution that employers could consider is the use of Health Reimbursement Arrangements (HRAs).
HRAs are employer-funded plans that reimburse employees for qualified medical expenses incurred during a given year. Unlike traditional insurance plans, HRAs are more customizable, as employers can choose to offer different levels of reimbursements and set parameters for the type of expenses HRAs can cover. Employers are also allowed to carry forward any unused funds each year, providing a long-term solution to offset employee health care costs.
Navigating the complex rules and regulations of HRAs can be challenging for employers, but it is important to have a thorough understanding of what HRAs are and how they work to make the best use of these plans for the benefit of their employees. Here are some key things that employers should know when considering HRAs:
1. Types of HRAs – Employers have several types of HRAs to choose from, depending on their needs and the size of their company. The most common types are:
a. Integrated HRAs: These plans are paired with traditional health insurance plans and are used to supplement employees’ out-of-pocket costs.
b. Stand-alone HRAs: This plan allows employees to purchase their own health insurance, and employers fund the HRA to help offset the employee’s medical expenses.
c. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): This type is for employers with less than 50 full-time employees and is funded by the employer for employees to use for qualified medical expenses.
2. Eligibility Requirements – To be eligible for an HRA, an employee must be enrolled in a health insurance plan that provides minimum essential coverage. HRAs can only be offered to employees who are not eligible for other group health plans offered by the employer. Employers can set parameters for the employees’ coverage, such as a specific deductible, copayment, or coinsurance requirements.
3. Plan Documentation and Compliance- Employers must adhere to strict regulations to remain compliant with the law. HRAs have consumer protection measures that employers must follow, and the plan’s policies and procedures should reflect these measures. Additionally, HRAs must be approved by the Department of Labor and the Internal Revenue Service before the plan can be implemented.
Employers should also provide employees with clear documentation detailing eligible expenses, how to file a claim, and the reimbursement process.
4. Annual Limits – HRAs are subject to annual limits set by the IRS. The employer must ensure that the reimbursement limit does not exceed the IRS’s annual set amount.
In summary, HRAs are an attractive alternative for employers who want to provide their employees with a flexible and customizable health care plan or supplement their existing health plan. However, employers must navigate through various complex regulations and compliance guidelines to ensure that the HRA plan remains compliant with the law, protects employees, and provides value to the company. Employers should consult a benefits specialist or a legal professional to ensure that they understand the intricacies of HRAs and their responsibilities as plan sponsors.