Since a Health Reimbursement Arrangement (HRA) can boost your healthcare offerings in a tight labor market while lowering your overall benefit costs, these pre-tax offerings are increasing in popularity. But with so many options to choose from today, it can be challenging to know which HRA is best for your business.
For over 18 years, Complete Payroll Solutions has been administering pre-tax health plans like HRAs to give employees the chance to offset benefit costs with savings from pre-tax dollars. To help you understand the differences between the HRA options on the market today so you can select the right approach for you and your employees, here we will compare three plan types — integrated group HRA, QSEHRA and ICHRA – in several key areas:
After reading this article, you’ll know how these plans differ and be prepared to pick the right HRA for your company.
With a new option — the ICHRA — made available in 2020, you now have more options than ever when it comes to HRAs for your company. The three we’ll discuss here are:
An integrated group HRA is the most common type of HRA for employers. It is linked to the group health plan you offer to help employees supplement their out-of-pocket healthcare costs such as deductibles, copays, and prescription costs. It is designed for employers of any size, who set the limits on the amount of reimbursement as well as what the eligible expenses are.
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is also known as a Small Business HRA. It’s designed for employers who have less than 50 full-time employees and don’t offer group health coverage. It allows employers to reimburse their employees for expenses for individual health insurance premiums and for qualified medical expenses such as copays and prescription costs. Employers can decide which expenses to allow for reimbursement. In 2021, a company with a QSEHRA may reimburse single employees up to $5,300 per year and employees with families up to $10,700 per year.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is designed for employers of any size. It allows employers to reimburse their employees for individual health insurance premiums and qualified medical expenses. Employers decide which expenses to allow for reimbursement and set the limits (which need to be offered fairly to each class of employees). There is no dollar limit on the amount of reimbursement. Employers can have a group health plan in place and offer ICHRA as well, but they can only be offered to different classes of employees. For example, if an employer has 2 different classes of employees, Class 1 can be offered the group health plan and Class 2 offered the ICHRA. Employees in Class 1 would not be able to use the ICHRA and employees in Class 2 are not allowed to enroll in the employer group health plan.
As you search for the right HRA, you’ll want to compare how they stack up based on your employee base, budget and resources. Here, we’ll compare the three types of HRAs in 7 different areas.
As you evaluate your HRA options, you’ll want to learn any restrictions to offering one based on your employee base. For each of the three plan types, here are the limits on the number of employees, if applicable.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| # of Employees | Any | Less than 50 | Any |
Of the different types of HRAs, you need to be aware which ones can be offered alongside other group health insurance plans.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Other Health Coverage | Must be linked to a group health plan | Cannot offer a group health plan | Can have a group health plan, but the group health plan and ICHRA can’t be offered to the same class of employees |
There are a lot of requirements you need to be aware of when offering a pre-tax benefit like an HRA. And the same rules apply no matter what HRA plan type you offer.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Create plan documents | X | X | X |
| Set reimbursement limit | X | X | X |
| Identify allowable expenses | X | X | X |
| Review submitted expenses | X | X | X |
| Reimburse employees or deny based on insufficient documentation | X | X | X |
While all HRA plans give you the option to set the contribution limits, you’ll want to make sure you don’t exceed any limits set by law.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Contribution Limit | Any | Up to $5,300 per year per employee and for employees with families, up to $10,700 per year | Any |
While you can choose to handle the day-to-day administrative tasks associated with offering an HRA yourself, many companies choose to partner with a third party administrator to make sure the plans are set up correctly, funded right, and used appropriately.
Generally speaking, TPA costs are charged on a per employee per month (PEPM) basis. Some administrators will charge the PEPM fee based on tiers of the number of employees, for example, 1-5 employees, 6-10 employees, and so on. Others will charge a flat rate per worker regardless of the total number of employees. Be sure you understand exactly how you’ll be charged.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Cost | Set up, base annual fee and PEPM | Set up, base annual fee and PEPM | Set up, base annual fee and PEPM |
As a tax-advantaged plan, no matter which of the HRA options you choose, reimbursements will be tax free to the employee. In addition, your reimbursements through the HRA are 100% tax-deductible.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Tax-free reimbursements for employees | X | X | X |
| Tax-deductible reimbursements for employers | X | X | X |
With any HRA, you’ll need to follow the rules in the laws and regulations that govern pre-tax plans. So you’ll want to make sure you create the required documents and follow specified procedures to stay in compliance.
| Integrated Group HRA | QSEHRA | ICHRA | |
|---|---|---|---|
| Develop plan documents | X | X | X |
| Create and distribute Summary Plan Description | X | X | X |
| Ensure proper claim substantiation | X | X | X |
| Adhere to the contribution cap | X | ||
| Follow HIPAA rules | X | X | X |
| Perform non-discrimination testing | X | X | X |
| File Form 5500 (only if over 100 participants) | X | X | X |
| Provide COBRA coverage | X | X | X |
| Follow ERISA claims procedures and appeals rules and record retention rules | X | X | X |
The expansion of HRA options mean employers have more flexible and affordable health insurance options. But to maximize the potential of an HRA for you and your employees, you’ll want to make sure you choose the right plan type.
As you consider your options, you may wonder what Complete Payroll Solutions offers in terms of HRAs. We can be the ideal administrator for your HRA if you’re looking for a provider who:
If we sound like a good fit for your business, read our next article about our pre-tax offerings.