An HRA is a fully employer-sponsored and funded spending account for healthcare expenses. You can think of it as an “allowance” your employer gives you to spend on certain kinds of medical expenses. There are five popular types of HRAs, each with different rules on eligibility and which expenses you can reimburse. The one rule they have in common is: you must sign up for this benefit through your employer during open enrollment (or during the special enrollment period if you’ve joined your employer mid-year).

So if your employer does offer an HRA (regardless of type), that’s great news! This is how these types of accounts work. Here are the four general steps of how an HRA works for companies and their employees:

1. The company sets an allowance amount. Some HRAs have federal limits on how much an employer can offer on an annual basis, while others allow the employer to contribute as much as it wants. Every year, the employer sets their annual limit for how much they will reimburse employees (not to exceed any applicable federal limits) and communicates this amount during open enrollment.

2. Employees purchase eligible healthcare items and services that fit their needs. Each type of HRA has different expenses that are eligible for reimbursement from the account. Some HRAs allow for reimbursement for all of the items and services listed under IRS Code Section 213(d), including health insurance premiums. Some do not allow reimbursement for health insurance premiums or copays and can only be used for out-of-pocket expenses like coinsurance responsibilities or deductibles. In most circumstances, the employer can further restrict the expenses for which their HRA can be used beyond IRS regulations.

3. Employees submit substantiation as well as proof of purchase. To receive reimbursement from most HRAs, employees will need to submit a receipt (i.e. substantiation) for proof of eligible purchase. The substantiation should include: name of person who received the service, the provider or merchant name, date of service (e.g. date service was incurred, not payment date), type of service or product, expense amount.

4. The company reimburses the employee. Once reimbursement requests are submitted, the HRA administrator will review the request on behalf of the plan sponsor. If the expense qualifies, the employee will be reimbursed from their annual benefit. If the expense does not qualify, the HRA administrator on behalf of the plan sponsor has to follow a declined claims and appeals process which is outlined in their HRA documents. These are the four general steps to how HRAs work. However, there are many types of HRAs and each has slightly differing rules. In the next section, we will go over the popular types HRAs, and note any specific rules or guidelines.

How Standard HRAs work

A popular type of HRA available to businesses is the Standard HRA, which is also known as the Integrated HRA or Group Coverage HRA.

Integrated HRAs must be combined with a group health insurance policy. These HRAs are an option for all sizes of businesses and can be offered along with a high-deductible health plan or any other type of high-deductible policy as a way to help employees pay for the higher deductible.

To be eligible to participate in and reimburse from an Integrated HRA, a person must be:

• An employee of a sponsoring employer, or an employee’s spouse or dependent child under the age of 27.

• Actively enrolled in a group health plan - either their employer’s group health plan or one offered by their spouse’s employer.

Here are the other unique characteristics of Standard or Integrated HRAs:

• There are no annual federal limits to the allowances employers give through their Standard HRAs. But employers can choose to place an annual cap on reimbursements.

• Standard HRAs can be used to pay for other 213(d) qualifying medical expenses, which are considered “standard” healthcare expenses, which is why it's referred to as a “standard HRA.” Employers can choose to further restrict the expenses for which they will reimburse beyond what the IRS Guidelines state.

An HRA can offer both employers and their employees flexibility to get the care and coverage they need and a tax-free way to pay for healthcare expenses.

How stand-alone HRAs work

Stand-alone HRAs are not specifically tied to a specific group health plan. Four popular types of HRAs are stand-alone:

• The Qualified Small Employer HRA (QSEHRA)

• The Individual Coverage HRA (ICHRA)

• The Excepted Benefit HRA

• The Retiree Only HRA

How qualified small employer HRAs(QSEHRA) work

QSEHRAs were created so that small employers (with less than 50 employees) that do not offer a group health plan can offer their employees a way to purchase health insurance in the private market. QSEHRAs are meant to help employees pay for health insurance premiums and other qualified out-of-pocket expenses.

To be eligible to participate in and reimburse from a QSEHRA, a person must be:

• An employee of a sponsoring employer, or an employee’s spouse or dependent child under the age of 27.

• Actively enrolled in a health insurance plan that meets minimum essential coverage requirements. If the person ceases to be enrolled in qualifying health coverage, they won’t be able to reimburse from this type of HRA.

Here are the other unique characteristics of QSEHRAs:

• There is an annual federal allowance limit. The IRS sets the allowance limit for employees annually, but employers could choose a lower annual reimbursement amount. These allowances must be offered to all employees meeting eligibility criteria.

• Employees might still qualify for premium tax credits. If employees use their QSEHRA to purchase a health insurance plan in the private market and their employer’s HRA allowance is too low to be considered “affordable”, that employee could qualify for premium tax credits.

• Unused balances are forfeited once an employee leaves the company.

How individual coverage HRAs (ICHRA) work

Created in 2020, ICHRAs enable employers to reimburse employees for health care expenses and health insurance premiums on a tax-free basis. ICHRAs are meant to help employees pay for health insurance premiums and other qualified out-of-pocket expenses, so instead of signing up for a pricey employer-sponsored group plan, an employer can scale benefits across 11 customizable classes of employees. Each employee can choose an individual health plan from the marketplace that works best for their families, their doctors, and their prescriptions. This can relieve employers of the administrative burden of group plans.

To be eligible to participate in and reimburse from a ICHRA, a person must be:

• An employee of a sponsoring employer, or an employee’s spouse or dependent child under the age of 27.

• Actively enrolled in a qualifying health insurance plan purchased in the private market. Qualifying health insurance plan types include: ACA-qualifying individual coverage, catastrophic plans, transitional plans, fully insured student health coverage.

Here are the other unique characteristics of ICHRAs:

• Employers can offer a group health plan OR an ICHRA.

• There are no annual federal limits to the allowances employers can offer through ICHRAs. But employers get to choose how much they offer and can adjust those offerings based on family size or employee age.

• Ineligible for premium tax credits. But an employee can opt out of their employer’s ICHRA if the allowance is too low to meet the affordability threshold, purchase an ACA-compliant individual plan in the private market and qualify for premium tax credits that way.

• If an employee separates from their employer they can retain access to ICHRA via COBRA if the employer allows.

How Excepted Benefit HRAs work

Excepted Benefit HRAs are the most restrictive types of HRAs as their annual allowance limits are the lowest of the popular HRAs and the range of expenses for which you can reimburse through this type of account is narrow. On the plus side, there are no co-enrollment eligibility requirements to participate in an EBHRA. In fact, you can be uninsured and take advantage of this benefit. The one requirement is that you are either an employee of a company that offers an EBHRA, or the spouse or dependent (under age 27) of an employee.

Here are the other unique characteristics of EBHRAs:

• The federal annual allowance limit for 2023 for EBHRAs is $1,950.

• This type of HRA can be used to reimburse for a limited list of expenses. These expenses include: premiums for individual health plans, COBRA, or dental and vision care, and coinsurance or copayments related to these types of insurance coverage.

• If an employee separates from their employer they can retain access to EBHRA via COBRA if the employer allows.

How Retiree Only HRAs work

Retiree Only HRAs were created to give employers a way to help employees who retire from their company pay for health care in their golden years. There is no co-enrollment eligibility requirement to participate in and reimburse expenses from a Retiree Only, the stipulation is that you are the employee who retired from the employer that offers this benefit, or that employee’s spouse or dependent (under age 27). Spouses and dependents are able to reimburse from a Retiree Only HRA even if the former employee is deceased.

Here are the other unique characteristics of Retiree Only HRAs:

• Can use HRA to pay for Medicare premiums.

• There is no federal annual allowance limit but employers may put their own annual limits in place.

Choose the HRA right for your business

While there are different rules that dictate how the different types of HRAs operate, they all give employers a low cost way to supplement their benefits offerings and support their employees. If you offer your employees a group health plan and want to include a Standard HRA in your benefits offerings, reach out to Lively today. Our user-centric design makes our Standard HRA easy for both HR staff and participants to use and our rich resource section ensures your employees will be well-supported.