Looking for that 5 best health reimbursement arrangement rules to keep in mind? We’ll take you step-by-step through them. Health reimbursement arrangements are quite simple – a company picks an HRA option, sets a financial budget, then your employer reimburses an employee for an insurance premium, medical bills, or a procedure. However, the guidelines and regulations surrounding HRAs can be a little confusing. We'll break it down for you personally.
But first, an HRA refresher
A health reimbursement arrangement allows employers to create aside a fixed amount of cash each month that employees can use to purchase individual health insurance or experience medical expenses, tax-free. What this means is employers reach offer benefits inside a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the program they need.
HRA types
Employers and employees need to be aware that some HRA account rules and guidelines can differ with respect to the type of HRA provided.
QSEHRA
QSEHRA – the qualified small employer HRA works for businesses with under 50 employees that don't offer a group plan. The QSEHRA has a monthly contribution limit, which typically increases from year upon year.
Here are 5 rules specific to QSEHRA!
ICHRA
ICHRA – the individual coverage HRA allows for tax-free reimbursement of benefits for any size business as well as for anywhere (no contribution limits!).
Here are 10 ICHRA rules to remember!
5 Health Reimbursement Arrangement Rules to Remember
- Owner eligibility: Whether self-employed owners can participate in an HRA depends on the way the plan and business are set up! In order for a business proprietor to participate in a QSEHRA, they ought to be considered a worker from the business. Since C-corps are legally separate from people, a business owner and dependents can utilize the QSEHRA. Since S-corp owners aren't employees, they sometimes cannot participate in a QSEHRA. Partners and sole proprietors can participate under certain loopholes – if a partner or sole proprietor's spouse is a W-2 employee, then the partner or sole proprietor can participate in the HRA like a dependent from the spouse.
- Employee eligibility: HRAs must be offered equally and fairly to all employees, but the way QSEHRA and ICHRA approach this really is different. While QSEHRA eligibility can only be scaled according to family size or age, ICHRA offers a greater deal of efficiency with its class feature, that allows employers to split employees up into an almost limitless quantity of custom classes that receive varying rates of reimbursement. Employers can provide ICHRAs to any or all eligible employees, in order to only certain classes of employees. In general, individual classes are based on job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One rule that sticks out here is that while ICHRA could be provided to one class and a group plan provided to another, a person can't be offered both.
- Eligible/qualified plans: The point of the HRA would be to afford flexibility to both employers and employees; however, one sort of option is off-limits – a company cannot offer the same type of employees a choice from a traditional group health plan as well as an ICHRA. If an employer does wish to provide group plan coverage to one kind of employee as well as an ICHRA to another type, there are some size requirements for certain classes of employees. Employers should also ensure that plans meet basic coverage requirements: There are specific rules for qualified health plans that integrate with ICHRAs and minimum essential coverage plans for QSEHRA.
- Employee usability: In order to use the individual coverage HRA amount, employees should be signed up for individual health insurance coverage – either by buying a plan with the ACA marketplace or through a private insurance provider, or through Medicare.
- Management/privacy: Employers are strongly advised not to manage their own HRA plan, because of federal privacy requirements. Of course, employers need to verify that workers are using funds to cover health insurance and medical expenses – but having employees submit receipts risks fines for HIPAA violations. It is best for employers to put administration of plans into another person's hands. Luckily, there are HRA administration tools available.
Have more questions about HRA rules?
Take Command is a recognized leader in QSEHRA administration and small business HRA tax strategy. We were at the forefront of the new ICHRA administration regulations and responded with our own comprehensive and exclusive research to the proposed regulations. When not obvious, our team is enthusiastic about HRAs and the impact they are able to have on small company.
Is your organization or client likely to be part of this exciting change? Talk to our team with any queries you may have about these new, tax-friendly benefits!
