A common question we receive from small employers is, “Can we still use a Health Reimbursement Arrangement (HRA) to reimburse employees for their health insurance?
The answer is, it depends. This article covers when an HRA may be used for individual health insurance reimbursement. We’ll also cover HRA alternatives to help with employees’ health insurance costs.
What is an HRA?
In case you are not familiar with an HRA, here is a quick overview. An HRA is an employer-funded health plan used to reimburse employees tax-free for out-of-pocket medical expenses and individual health insurance premiums.
HRAs are very flexible. For example, the employer can decide what types of medical expenses are reimbursed and whether funds rollover year to year. HRAs can be offered in combination with a group health insurance policy or as a stand-alone health benefit in certain situations.
In the past, stand-alone HRAs were widely used by small businesses to reimburse individual health insurance premiums, as an alternative to providing traditional health insurance coverage.
So, Can We Still Use an HRA to Reimburse Employees for Health Insurance?
For most employers, the answer is no.
Under new Affordable Care Act (ACA) reforms, an HRA can no longer be used for health insurance premiums. There are, however, some exceptions.
We’ll discuss the new reforms, and the exceptions, next.
What are the New Reforms Impacting HRAs?
To put it simply, all group health plans, including HRAs, must comply with new ACA reforms. Under the ACA “Market Reforms,” group health plans must - among other things - not place an annual or lifetime limit on essential health benefits.
With an HRA, the employer provides a set allowance for employees to spend on healthcare. There is a limit to how much an employee can receive, so by definition, an HRA places a limit on essential health benefits.
When Can an HRA Be Used to Reimburse Health Insurance?
There are two “types” of HRAs that are exempt from the Market Reforms. If you offer an HRA in these circumstances, the HRA may still reimburse individual health insurance premiums:
Retiree HRAs (an HRA offered only to retired employees)
One-person Stand-alone HRAs (an HRA with only one plan participant)
It may also be helpful to note that an Integrated HRA is still a compliant type of HRA. However, an Integrated HRA is not used to reimburse individual health insurance premiums. An Integrated HRA is offered alongside group health insurance coverage and reimburses medical costs not covered by the insurance plan.
For more information on HRAs in 2015, download this free eBook.
If Not an HRA, Then What?
If an HRA is no longer the right solution for helping employees with their individually-purchased health insurance, what is? The most common medical reimbursement plan used is a Health Reimbursement Plan, or HRP.
An HRP is an employer-funded, tax-advantaged benefit designed to reimburse employees for individual health insurance premiums. It is also designed to comply with the new Affordable Care Act rules. An HRP is a type of Section 105 Self Insured Medical Reimbursement Plan.
With new healthcare reforms, HRAs may no longer be used to reimburse individual health insurance - for most employers.
Will this change in the near future? It’s possible. Just last week, new legislation (the Small Business Healthcare Relief Act) was introduced. If passed, HRAs may once again be a viable solution for health insurance and medical expense reimbursement.
What questions do you have about HRAs and reimbursing individual health insurance? Leave a question below and we’ll help answer it.