Healthcare reimbursement arrangements, also known as HRAs, provide businesses a way to offer their employees a more affordable healthcare solution than the traditional group coverage options. HRAs are employer funded health plans that reimburse employees for out-of-pocket medical expenses up to an annual limit set by the employer. In this way, an HRA is very similar to a health savings account (HSA) and is sometimes confused. The key difference between an HSA and an HRA is who is funding the account. HRAs are funded by the employer and HSAs are funded by a salary reduction the employee elects.

In 2019, there were two types of HRAs from which employers could choose. Let’s take a look at each of the options for 2019, as they will continue to be available in 2020:

• Health reimbursement arrangement (HRA)
  • Under this type of plan, the employer determines the maximum amount they will reimburse the employee. They can choose to pay as they go, or fund this by purchasing an insurance policy or funding it through a trust.
• Qualified small employer health reimbursement arrangements (QSEHRA)
  • The QSEHRA is very similar to the HRA, however, it is not considered a group health plan and is not subject to market reform provisions (1). In order to qualify, the employer cannot offer a group health plan to any of their employees and must not be an applicable large employer as defined in IRC 4980H (2).

Beginning in 2020, there are two new HRA options: the individual coverage health reimbursement arrangement and the excepted benefit health reimbursement arrangement.

• Individual coverage health reimbursement arrangement (ICHRA) – can be used in conjunction with the employee purchasing their own insurance on the marketplace and can be used to reimburse their premiums. It can be offered to all employees or to a class/classes of employees the employer defines. This plan can meet the employer shared responsibility requirement for minimum essential coverage.
• Excepted benefit health reimbursement arrangement (EBHRA) – used only for out-of-pocket qualified medical expenses but not premiums (IRC 213(d)). This type of plan does not meet the minimum essential coverage requirement. The annual limit for 2020 is $1,800. Contribution amounts will be adjusted for inflation.

An additional consideration for using one of some these plans is the ability to extend these plans to retired employees and COBRA-eligible individuals. Also, small businesses with 25 or fewer employees may be eligible for tax credits for up to 50% of the premiums they pay. For more information on whether your client might qualify for the Credit for Small Employer Health Insurance Premiums (Form 8941), you can use this estimator available on the IRS website.

Below is a table to more easily compare the general conditions of these plans:

To learn more about these HRA options, you can attend our on-demand webinar, Tax Treatment of Health Reimbursement Arrantements (HRA).

Professional level NATP members receive a free 2 CPE webinar during their membership year, and Premium level NATP membership includes free access to all on-demand and live webinars.

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(1) PPC 908 Health Reimbursement Arrangements
(2) §4980H Shared responsibility for employers regarding health coverage