There’s a new way of doing employer-sponsored health insurance and it’s based on reimbursing employees for health insurance rather than buying it for them. It’s called a health reimbursement arrangement and it brings more cost control and flexibility to companies and more choice for employees.
What are the types of HRAs?
HRAs have been around a while, but the newer “flavors” – specifically the Qualified Small Employer HRA and the Individual Coverage HRA, are more recent defined contribution models.
The Qualified Small Employer HRA (QSEHRA) was established when President Obama signed the 21st Century Cures Act in 2016. It put small businesses on nearly the same playing field from a tax-advantage perspective as large employers with group plans. It has annual limits and is for businesses with less than 50 full time employees only.
The Individual Coverage HRA (ICHRA), which was created by regulatory rule updates in 2019, became available January 2020. It expands upon the advantages of QSEHRA and opens it up to business of all sizes without annual limits. One feature that ICHRA does that QSEHRA does not is allow for businesses to divide employees into classes and reimburse at different rates per class.
How HRAs work
The mechanics of an HRA are pretty simple. Business owners determine a set budget for their employees to reimburse for health insurance and workers choose the plan that works best for them. Some employers also reimburse for medical expenses.
Employers then “design” their HRA. They can choose to divide up by class, or scale rates by family size and age (which is the most common). Employees buy their own individual health insurance plan and are reimbursed through their paycheck. If they go to the doctor, they can submit a receipt and get reimbursed for the copay (if the plan allows for medical expense reimbursement).
Benefits of HRAs
HRAs are good for both employers and employees. Here’s why.
- Flexibility: HRAs make sense for a diverse workforce; it’s hard to find a plan that will work for all types of employees, especially part-time, hourly and remote workers.
- Cost Control: Group premium prices can go up every year, but HRA allowances are predictable and set, and can allow for savings.
- Risk De-management: Employers no longer have to worry about managing risk.
- Compliant: HRAs, when set up and administered appropriately, can satisfy the employer shared responsibility provisions of the Affordable Care Act and the right HRA administrator ensures that the HRA offer remains compliant.
- No participation rates to worry about
- Choice: Employees can choose any ACA-compliant plan on the market and select the level of coverage that best fits their family needs and that works with their preferred doctors and prescriptions.
- Portability: QSEHRA and ICHRA allow employees to keep their coverage in the event they lose or change jobs.
Which HRA is right for my business?
Need help sorting through the details of your HRA options and finding the right one for you? Take Command’s team of experts are on hand to help. Please schedule a time to chat with our HRA Design team to see if an HRA is a good fit for you or check out one of our helpful guides on our favorite HRAs, like our ICHRA Guide and QSEHRA Guide.
About Our Sponsor Take Command
Take Command is on a mission to accelerate the adoption of the reimbursement model of health insurance to help create a consumer-centric healthcare system. Take Command is a proud inaugural member of the HRA Council, a recognized leader in QSEHRA administration for small employers, launched the first-to-market Individual Coverage HRA platform, and is the only HRA administrator to also offer full service, in-house individual enrollment support.