HRAs: Do you have the right one that’s tailored to employees’ needs?

Health Reimbursement Accounts (HRAs) are a flexible health care financing tool that can be used by employers to assist their employees with paying for out-of-pocket medical expenses. However, HRAs come in many different shapes and sizes, allowing the plan design to be tailored specifically towards employees’ business needs. Choosing the right plan design for your HRA can be a bit of an art form. But, follow these five questions to determine the HRA and plan design that makes the most sense for your employees.

Are you offering a group health plan that will be integrated with the HRA/?

Since the Affordable Care Act was passed, nearly all HRAs need to be offered alongside a major medical plan, such as high-deductible, low premium insurance plans. There is one exception and two partial exceptions to this rule:

Individual Coverage HRA

An Individual Coverage HRA or ICHRA allows employers to pay a specified amount toward the individual health insurance plan. There are specific rules and considerations that may limit the use of this account. For example, if you offer a group health plan to an employee class, you cannot also provide an ICHRA. Additionally, individuals that receive contributions to an ICHRA will not be eligible for premium subsidies on the individual exchange. A slight alternative to an ICHRA is a Qualified Small Employer HRA (QSEHRA), which permits small employers with fewer than 50 employees to contribute amounts towards individual insurance. At first glance, both an ICHRA or QSEHRA sound like a good option, but make sure you dive into the details. Oftentimes, there is a better alternative available.

Excepted Benefit HRA

An Excepted Benefit HRA (EBHRA) allows employers to pay up to $1,800 annually towards an employee’s out-of-pocket medical expenses. The Excepted Benefit HRA is a hybrid between an ICHRA and integrated HRAs. An EBHRA can be offered to employees that are eligible to participate in the employer’s health plan, even if they decline group plan coverage.

Expanded Definition of Group Health Plan

Integrated HRAs must be offered with a group health plan. However, the rules do not specify that employees must be enrolled in the company’s group health plan. As long as an employee is enrolled in a group health plan (even if provided elsewhere), the employee may be eligible to participate in the company’s integrated HRA. Plan sponsors that intend to use this option should make sure their plan documents reflect it. Additionally, employees should provide evidence or certification that they are covered by another group health plan.

Does the HRA need to be compatible with an HSA?

In general, an HRA constitutes other coverage and cannot be offered while contributing to an HSA. If the HRA will be offered alongside an HSA, there are five ways you can make it HSA- compatible:

Limited HRA

A Limited HRA is designed to only pay dental and vision expenses. Preventive care services may also be included but can be more challenging to communicate and administer.

Post Deductible HRA

The Post Deductible HRA only reimburses expenses when the out-of-pocket deductible threshold is met. The out-of-pocket threshold for deductible expenses must be at least $1,400 for single coverage or $2,800 for family coverage in 2022 (increases to $1,500 for single and $3,000 for family in 2023).

Limited Post Deductible HRA

A Limited Post Deductible HRA combines the two prior options. It will pay dental and vision expenses prior to the deductible and opens to pay all eligible medical expenses once the out-of-pocket deductible threshold is met.

Retirement HRA

A Retirement HRA allows an employee to accumulate HRA funds, but the funds cannot be used until post-employment and no further contributions to an HSA.

Suspended HRA

A Suspended HRA allows an employee to freeze an existing HRA balance while contributing to an HSA. The Suspended HRA will not permit any withdrawals.

When will expenses be paid?

HRAs are often used to control premium costs, drive desired behaviors or to reduce the impact of a high deductible. However, employers may still want employees to have the responsibility of paying for the initial expenses. This may lead to the use of a deductible-based HRA:

Simple Deductible HRA

In a Simple Deductible HRA, the plan defines a minimum deductible employees need to meet prior to paying eligible medical expenses.

Embedded Deductible HRA

In the Embedded deductible HRA, the plan will reimburse based on the individuals within the family meeting the single deductible or the family meeting the aggregate deductible amount.

What expenses will be covered?

A majority of HRAs are designed to pay all eligible medical expenses as defined by the IRS and available in Publication 502. There are a variety of reasons an employer may want to limit the types of expenses the HRA pays. The most common is the Limited HRA (previously discussed) and allows individuals to contribute to an HSA. But, there are a few other options that are generally available:

Deductible, Coinsurance, Copay HRA

This HRA is designed to only pay expenses that are related to the medical plan coverage and would exclude over-the-counter, dental, vision and other ancillary services.

Select Services HRA

There are situations where employers are looking to provide expanded coverage for a list of select services due to environmental, social or regulatory factors. For example, a Select Services Program might be designed to cover fertility benefits, birth control services, mental health and substance abuse service. It would be a narrower set of expenses addressing potential gaps in coverage from the health plan. Before implementing a Select Services HRA, plan sponsors should consult their benefits attorney to ensure the specific rules and laws affecting the plan are considered.

What happens to remaining funds at the end of the plan year?

While not technically a different type of HRA, how funds are handled at the end of the plan year is a key feature of all HRAs and can play a role in how it is positioned and used by employees. Employers that are looking to tightly tie the HRA to the health plan may want HRA funds to expire or be forfeited at the end of the plan year. This is common when offering a Deductible-based HRA. Employers that are looking to position the HRA as an added long-term benefit of employment should consider allowing HRA funds to roll from year to year and be available for future expenses.

There is a lot of variability in HRAs. It can be easy to get overwhelmed by the options or fall into the trap of creating a complex design. But with a few simple questions, you can easily select the option that will best serve your needs.

Becky Seefeldt is VP of Strategy at Benefit Resource (BRI), where she is currently responsible for marketing and product strategy, and works with the executive team to set and execute company-wide strategic initiatives. Prior to joining BRI, Becky served as the Marketing Director for HSA Bank.