Types of HRAs You Should Know

Health Reimbursement Arrangements (HRAs) are a versatile and tax-advantaged way for employers to provide healthcare benefits to their employees. These employer-funded arrangements reimburse employees for qualified medical expenses, offering financial relief while maintaining compliance with IRS regulations. 

Understanding the different types of HRAs is essential for businesses looking to tailor their benefits packages effectively. Here’s a detailed guide to help you navigate the types of HRAs available and their unique features.

What is an HRA?

An HRA is an employer-funded plan that reimburses employees for eligible medical expenses, including insurance premiums, deductibles, and copays. Unlike Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), HRAs are fully funded by employers and do not require employee contributions. Employees benefit from tax-free reimbursements, while employers enjoy tax-deductible contributions.

HRAs are highly flexible, allowing businesses to customize plans based on their workforce's needs. They are governed by IRS rules, ensuring compliance with federal regulations while providing a cost-effective alternative to traditional health insurance plans.

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Types of HRAs

HRAs come in various forms, each designed to meet the specific needs of different businesses and employee groups. Below are the most common types of HRAs:

1. Qualified Small Employer HRA (QSEHRA)

Who it’s for: Small businesses with fewer than 50 full-time employees that do not offer group health insurance.

Key features:

• Reimburses individual health insurance premiums and qualified medical expenses.
• Tax-free for employees and tax-deductible for employers.
• Annual contribution limits set by the IRS (e.g., $6,150 per individual and $12,450 per family in 2024).

Benefits: Simplifies healthcare benefits for small businesses while ensuring compliance with IRS regulations.

2. Individual Coverage HRA (ICHRA)

Who it’s for: Businesses of any size seeking flexibility in offering health benefits.

Key features:

• Reimburses individual health insurance premiums and other qualified medical expenses.
• No annual contribution limits, offering maximum flexibility.
• Employees can select their own insurance plans that suit their needs.
• Meets ACA employer mandate requirements when designed correctly.

Benefits: Allows employers to customize reimbursement rates based on job roles, geographic location, or family size.

3. Group Coverage HRA (GCHRA)

Who it’s for: Employers offering traditional group health insurance plans, often paired with high-deductible health plans (HDHPs).

Key features:

• Covers out-of-pocket expenses like deductibles and copays not covered by group plans.
• Employers can decide whether unused funds roll over annually or remain with the company.

Benefits: Reduces financial strain on employees while enhancing the value of group health plans.

4. Excepted Benefit HRA (EBHRA)

Who it’s for: Employers offering group health insurance who want to provide additional coverage options.

Key features:

• Covers dental, vision, COBRA premiums, and other excepted benefits.
• Annual contribution limit set at $2,150 in 2025.
• Enrollment in a primary group health plan is not required to participate in an EBHRA.

Benefits: Offers supplemental coverage without requiring enrollment in a major medical plan.

5. Retiree HRA

Who it’s for: Retired employees of organizations of any size.

Key features:

• Reimburses eligible medical expenses during retirement, such as COBRA premiums or Medicare-related costs.
• No contribution limits or group health insurance requirements apply.

Benefits: Helps retirees manage healthcare costs effectively during retirement years.

6. Limited Purpose HRA

Who it’s for: Employers pairing HRAs with Health Savings Accounts (HSAs).

Key features:

• Reimburses dental and vision expenses exclusively.
• Works well for employees with specific needs like orthodontia or eyewear.

Benefits: Complements HSAs by covering non-medical core expenses.

Advantages of HRAs

HRAs provide numerous advantages for both employers and employees:

1. Cost Control: Employers can set fixed reimbursement limits, helping them manage healthcare budgets effectively.
2. Flexibility: Plans can be tailored to cover specific expenses like premiums or out-of-pocket costs.
3. Tax Benefits: Contributions are tax-deductible for employers and tax-free for employees when used for qualified medical expenses.
4. Employee Satisfaction: HRAs empower employees to choose healthcare options that suit their needs, increasing satisfaction and retention.

How Do HRAs Work?

Employers fund the HRA account with a predetermined amount annually or monthly. Employees pay for eligible medical expenses out-of-pocket and then submit claims for reimbursement up to the allocated limit set by the employer.

Some HRAs allow unused funds to roll over into the next year, depending on the plan design—this feature is particularly beneficial in Group Coverage HRAs (GCHRAs) but may not apply universally.

Why Should Employers Consider HRAs?

HRAs provide a win-win solution: they reduce healthcare costs for businesses while giving employees more control over their healthcare choices. By offering flexible reimbursement options tailored to specific needs—whether through QSEHRA for small businesses or ICHRA for larger organizations—employers can enhance employee satisfaction while staying compliant with federal regulations.

Moreover, as healthcare costs continue to rise, HRAs offer a predictable way to budget benefits without compromising on quality or employee choice.

Conclusion

Understanding the various types of HRAs is essential for employers aiming to provide personalized healthcare benefits while managing costs effectively. Whether you’re a small business exploring QSEHRA or a large organization considering ICHRA's flexibility, there’s an HRA type suited to your needs.

For more information on how Venteur simplifies ICHRA administration across all states, explore our platform today! With Venteur's expertise in regulatory compliance and customizable solutions, offering tailored employee benefits has never been easier!

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