Health reimbursement arrangement (HRA) eligibility FAQs

Key Takeaways:

• HRA Types: Different HRAs (ICHRA, QSEHRA, GCHRA) have specific eligibility rules based on company size and existing health plans.
• Employee Eligibility: Generally, W-2 employees are eligible for HRAs, while 1099 contractors are not. Specific requirements vary by HRA type and employer policies.
• Business Owner Participation: C corporation owners can participate in HRAs, but sole proprietors and partners typically cannot, unless through an eligible spouse.
• Eligible Expenses: HRAs can reimburse a wide range of medical expenses, including insurance premiums, prescriptions, and over-the-counter medicines.
• Maintaining Eligibility: Employees must keep required health insurance coverage active and follow employer policies to maintain HRA eligibility.

Are you curious about Health Reimbursement Arrangements (HRAs) and who qualifies for them? You're not alone. With the rising costs of healthcare, many employers and employees are turning to HRAs as a flexible and cost-effective health insurance option. In fact, a recent survey found that 19% of covered workers are enrolled in an account-based health plan like an HRA, up from 13% in 2020. This article will answer your most pressing questions about HRA eligibility, helping you navigate this valuable health benefit.

What is a Health Reimbursement Arrangement (HRA)?

An HRA is an employer-funded, IRS-approved health benefit that allows organizations to reimburse employees tax-free for qualified medical expenses, including individual health insurance premiums. Unlike traditional group health insurance, HRAs offer more flexibility and control over health benefit spending for both employers and employees.

HRAs have gained popularity in recent years due to their ability to provide tailored health benefits while controlling costs. For employers, HRAs offer predictable expenses and the ability to set their own budget. For employees, HRAs provide the freedom to choose their own health insurance plans and receive tax-free reimbursements for eligible expenses.

If you're an employer looking to implement an HRA for your organization, Venteur can help you design and manage a customized HRA solution that meets your unique needs.

Who Can Offer an HRA?

Organizations of all sizes can offer HRAs to their employees. Whether you're a small business with just one employee or a large corporation with thousands, you can set up an HRA to provide health benefits to your workforce. However, there are some specific rules depending on the type of HRA you choose to offer.

It's important to note that while any employer can offer an HRA, the decision to do so should be based on careful consideration of your organization's needs, budget, and employee preferences. Venteur's team of experts can guide you through the process of determining whether an HRA is the right choice for your company.

What are the HRA Adoption Trends

What are the Types of HRAs and Their Eligibility Requirements?

There are several types of HRAs, each with its own set of eligibility criteria:

1. Individual Coverage HRA (ICHRA)

The ICHRA is a relatively new type of HRA that allows employers of any size to reimburse employees for individual health insurance premiums and other qualified medical expenses. To be eligible for an ICHRA:

• Employees must be enrolled in individual health insurance coverage that provides minimum essential coverage (MEC).
• Employers can offer ICHRAs to different classes of employees, such as full-time, part-time, seasonal, or those in specific geographic locations.
• Employers cannot offer both an ICHRA and a traditional group health plan to the same class of employees.

ICHRAs offer significant flexibility for both employers and employees. They allow employers to set different allowance amounts for different employee classes, providing a way to tailor benefits to specific workforce needs. For employees, ICHRAs offer the freedom to choose their own individual health insurance plans, which can be particularly beneficial in areas with competitive insurance markets.

2. Qualified Small Employer HRA (QSEHRA)

QSEHRAs are designed specifically for small businesses with fewer than 50 full-time equivalent employees. Eligibility requirements include:

• The employer must not offer a group health plan to any employees.
• All full-time employees must be offered the QSEHRA on the same terms.
• Part-time and seasonal employees may be excluded.

QSEHRAs can be an excellent option for small businesses looking to provide health benefits without the complexity and cost of traditional group health insurance. They offer a way for small employers to contribute to their employees' healthcare costs while allowing employees to choose their own individual health insurance plans.

3. Group Coverage HRA (GCHRA)

Also known as an Integrated HRA, the GCHRA is offered alongside a traditional group health insurance plan. Eligibility criteria include:

• Employees must be enrolled in the employer's group health insurance plan.
• Employers can offer different allowance amounts to different classes of employees, such as full-time vs. part-time or based on job titles.

GCHRAs can help employers offset the high deductibles often associated with more affordable group health insurance plans. By providing funds to cover out-of-pocket expenses, GCHRAs can make high-deductible health plans more attractive and manageable for employees.

If you're considering implementing any of these HRA types, Venteur can provide expert guidance on which option best suits your organization's needs and help you navigate the setup process.

4. Retiree Health Reimbursement Arrangement (Retiree HRA):

A Retiree HRA is an employer-funded account designed to help retired employees cover eligible medical expenses during retirement, such as individual health insurance premiums, Medicare premiums, and out-of-pocket healthcare costs. Employers can customize the plan design, including contribution amounts and eligible expenses, making it a flexible and tax-advantaged benefit for retirees.

5. Excepted Benefit Health Reimbursement Arrangement (EBHRA):

An EBHRA is a specialized type of HRA designed to cover specific expenses not included in the primary group health insurance plan. These may include costs for dental, vision, and other limited medical benefits. Unlike other HRAs, EBHRAs do not require employees to be enrolled in the group health plan to access these funds, making them a flexible option for addressing supplementary healthcare needs. Employers can use EBHRAs to enhance employee benefits while maintaining compliance with IRS regulations.

HRA Eligibility for Employees

While specific eligibility requirements can vary depending on the type of HRA and employer preferences, generally, to be eligible for an HRA:

1. You must be an employee of the company offering the HRA.
2. You must meet any waiting periods or other criteria set by your employer.
3. For ICHRAs and QSEHRAs, you must have individual health insurance coverage that meets MEC requirements.
4. For GCHRAs, you must be enrolled in your employer's group health insurance plan.

It's crucial for employees to understand their eligibility status and the specific requirements of their employer's HRA. If you're unsure about your eligibility or have questions about how to maximize your HRA benefits, Venteur's support team can provide clear, personalized guidance.

Special Considerations for HRA Eligibility

Employee Classifications

Employers can use job-based criteria to create different classes of employees and offer varying HRA benefits. Common classifications include:

• Full-time vs. part-time employees
• Salaried vs. hourly workers
• Employees in different geographic locations
• Seasonal employees
• Employees covered by collective bargaining agreements

These classifications allow employers to tailor their HRA offerings to different segments of their workforce, potentially improving employee satisfaction and retention. However, it's important to ensure that these classifications comply with non-discrimination rules and other relevant regulations.

New Hires

Employers can set waiting periods for new hires before they become eligible for the HRA. This waiting period can vary but typically aligns with other benefit eligibility timelines. Some employers may choose to offer immediate HRA eligibility as a recruitment incentive, while others may prefer a probationary period.

Former Employees

In some cases, former employees, such as retirees, may be eligible for HRA benefits. However, this depends on the specific HRA plan design and employer policies. Offering HRA benefits to retirees can be a valuable part of a comprehensive retirement package, helping to attract and retain talent over the long term.

Can a business owner participate in an HRA?

Business owners' eligibility for Health Reimbursement Arrangements (HRAs) depends on their classification by the IRS. C corporation owners, considered W-2 employees, can participate in HRAs. However, sole proprietors, partners, and S corp shareholders owning over 2% of shares are ineligible.

Interestingly, sole proprietors and partners may indirectly benefit if their spouses are W-2 employees of the business. This arrangement allows participation through the spouse's eligibility.

For specific HRA types:

• QSEHRA: Check business owner eligibility guidelines
• ICHRA: Review participation rules for owners

Can 1099 contractors participate in an HRA?

Independent contractors (1099 workers) are not eligible for HRA participation. The benefit is exclusively for W-2 employees and their qualifying dependents.

Understanding these distinctions is crucial for businesses considering implementing an HRA program. It ensures compliance with IRS regulations and helps avoid potential tax issues.

How to Determine Your HRA Eligibility?

To find out if you're eligible for an HRA:

1. Check with your employer or HR department to see if they offer an HRA.
2. Review your employment status and job classification.
3. Understand the type of HRA your employer offers and its specific requirements.
4. Ensure you have the necessary health insurance coverage (individual or group plan, depending on the HRA type).
5. Be aware of any waiting periods or other criteria you need to meet.

If you're an employer looking to implement an HRA or an employee trying to understand your benefits, Venteur can provide clear, actionable information to help you navigate the process.

What are the Benefits of HRA Eligibility?

Being eligible for an HRA can provide several advantages:

• Tax-free reimbursements for qualified medical expenses
• More flexibility in choosing health insurance coverage (for ICHRAs and QSEHRAs)
• Potential cost savings compared to traditional group health insurance
• Access to funds for out-of-pocket medical expenses

HRAs can also provide peace of mind, knowing that you have financial support for your healthcare needs. For employers, offering an HRA can lead to improved employee satisfaction and better ability to attract and retain talent.

Which expenses are eligible for reimbursement?

Health Reimbursement Arrangements (HRAs) allow employers to reimburse employees for a wide range of qualifying medical expenses as outlined in IRS Publication 502 and expanded by the CARES Act. For Qualified Small Employer HRAs (QSEHRAs) and Individual Coverage HRAs (ICHRAs), individual health insurance premiums are also eligible for reimbursement.

Here are some common HRA-eligible expenses:

• Prescription medications
• Over-the-counter drugs and medicines (no prescription required)
• Vision care products like contact lenses and solutions
• Dental treatments and services
• Doctor's office visits and co-pays
• Medical equipment and supplies
• Mental health counseling
• Physical therapy

Additionally, the CARES Act expanded eligible expenses to include:

• Menstrual care products (e.g., tampons, pads)
• Over-the-counter pain relievers and cold medicines
• Allergy medications
• Heartburn treatments

It's important to note that specific HRA plans may have different rules regarding eligible expenses, so employees should always check with their plan administrator for a complete list of reimbursable items.

How to Maintain Your HRA Eligibility?

Once you're eligible for an HRA, it's important to maintain your eligibility. This typically involves:

• Keeping your required health insurance coverage active
• Submitting proper documentation for reimbursements
• Staying informed about any changes to your employer's HRA policies

Venteur's user-friendly platform makes it easy for employees to manage their HRA benefits, submit claims, and track reimbursements, ensuring they can make the most of their eligibility.

Understanding HRA eligibility is crucial for both employers and employees. By knowing the requirements and benefits of these arrangements, you can make informed decisions about your health insurance options and maximize your healthcare benefits.

Whether you're an employer considering implementing an HRA or an employee looking to understand your benefits better, Venteur is here to help. Our comprehensive HRA solutions and expert support can guide you through every step of the process, from initial setup to ongoing management. Contact Venteur today to learn how we can help you navigate the world of HRAs and optimize your health benefits strategy.