It’s a given that offering your employees some form of health benefit is essential to recruiting and maintaining talent. But offering health benefits can also help your employees to be more productive because it makes them feel supported, helps to ensure they seek the care they need because they have a way to pay for it, and it can lower financial stress.
Now, the options for employers have to help their employees pay for healthcare costs are many and only seem to grow each year. In this post we’ll explore the value that offering a Health Reimbursement Arrangement (HRA) can bring to your employees and company as a whole.
What are they?
An HRA is an employer-funded account that employees can use to reimburse for health-related costs. Overall, they help employers save money on healthcare while giving their employees options for spending on health-related needs. There are many types of HRAs, each with their own rules about what can be reimbursed through the account, the annual limit for which employees can reimburse, co-enrollment requirements and more. Here are five popular HRA types:
- Integrated or Standard HRAs. These are offered alongside a group health plan. To participate, employees must be co-enrolled in a group health plan either through their employer or their spouse’s employer. Anyone whose expenses are reimbursed through this account (i.e. spouse and child dependents) must be enrolled in a group health plan in order for their reimbursements to be eligible. Through this type of HRA they can reimburse for other qualified medical expenses like coinsurance responsibilities. There are no annual limits for employer contributions to this account.
- Individual Coverage HRA (ICHRA). These types of HRAs are not offered with a group health plan, and are instead offered as a way for participants to purchase an individual or family plan in the private market. As such, in order to participate in this type of HRA, the employee, and anyone else whose expenses are being reimbursed through the account, must be enrolled in a health plan that meets ACA minimum essential coverage requirements. This type of HRA can be used to pay for health insurance premiums as well as other qualified medical expenses. There are no annual limits to employer contributions to this account.
- Qualified Small Employer HRA (QSEHRA). This type of HRA is also intended to help employees purchase individual or family health insurance plans in the private market. As such, in order to participate in this type of HRA, the employee, and anyone else whose expenses are being reimbursed through the account, must be enrolled in a health plan that meets ACA minimum essential coverage requirements. This type of HRA can be used to pay for health insurance premiums as well as other qualified medical expenses. The IRS sets maximum contributions for individuals and family plans.
- Excepted Benefit HRA (EBHRA). This type of HRAs can be offered alongside a group health plan but there is no co-enrollment requirement for employees or their spouses or dependents to participate. In fact, employees don’t have to be enrolled in any health plan at all. These types of accounts can be used to pay for dental and vision insurance premiums as well as qualified medical expenses related to general health care like copays, coinsurance responsibilities and prescriptions. The IRS sets annual employer contribution limits for these type of HRAs.
- Retiree Only HRA. This type of account is a way for employers to offer their former employees a retirement benefit. These types of accounts can be used to pay for Medicare premiums and other out-of-pocket medical expenses and do not carry a co-enrollment requirement to participate.
The six ways HRAs bring value to an employers’ benefits offerings
HRAs can offer companies of multiple sizes across many industries flexibility and cost savings, and help their employees stay healthy and productive.
- Increased flexibility in how you help employees pay for health-related costs. If you’re a small employer, paying for a group health plan might be cost-prohibitive. Or, perhaps the plan you can afford isn’t likely to be popular amongst your employees. By offering either an ICHRA or QSEHRA, you’re able to give your employees a way to buy the plan they want and fund their accounts according to your budget. Integrated HRAs and EBHRAs give employers a way to help employees pay for out-of-pocket costs and can serve as a powerful recruitment tool.
- Greater cost savings and control over the type of health services you pay for. The IRS sets certain guidelines as to which types of expenses can be reimbursed for through an HRA but employers can choose to further restrict the types of health services and care they’ll reimburse for through the HRA. This can help control costs and ensure the coverage you offer is inline with your company values.
- Offer health benefits to employees that don’t qualify for group coverage. The IRS allows employers to offer an ICHRA to specific classes of employees (as long as it’s offered to everyone in that employee class equally). This enables employers to give part time, hourly or other classes of employees, who might not qualify for the group health plan, a way to buy health insurance coverage.
- Employees have more flexibility in the type of health insurance plan they choose. Both ICHRAs and QSEHRAs allow employees to use the money employers make available to buy the health insurance plan that most benefits them. Instead of being stuck with a group plan that isn’t exactly what they want.
- A way to offer retirement benefits without the cost and risk of a 401k. Traditional retirement plans like 401(k)s can be expensive and risky to manage, especially for small employers. But a Retiree Only HRA can allow companies to help former, retired employees to pay for Medicare and other health-related costs.
- Employees are more likely to be healthier and less stressed. People who have a way to pay for health services are more likely to seek the treatment they need. They’re also less likely to feel financial stress. The healthier and less stressed people are, the more productive they are. By offering any of the HRAs available, employers can give their workforce a way to pay for health services and thus increase the likelihood that they will have a healthy and productive workforce.
Ensuring your benefits package is valuable to employees is essential for recruiting and retaining talent. But it’s also important to consider benefits that bring value to the company and flexibility to company operations. Offering an HRA can serve both needs. While they provide a way for employees to pay for out-of-pocket medical expenses and can empower them to purchase the health plan that makes sense for them, HRAs also give companies options in terms of how they support their employees so they can do it in a way that makes sense for the business as well.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.