How we got to the creation of ICHRA is a story about government policy. So, not the most enjoyable to read – but it’s important. Kinda like eating okra.
HRAs are exactly as the name says: arrangements between an employer and employee to create a method of payment reimburse the employee’s medical expenses and/or insurance premiums up to a maximum dollar amount set by the employer per coverage period. Similar to a group health plan, the HRA is tax free and lowers the employee’s taxable income amount.
Employees can choose from a broad range of qualified health plans.
The Employee Retirement Income Security Act (ERISA) and the Health Insurance Portability and Accountability Act (HIPAA) helped lay the foundation for HRAs. HRAs must comply with ERISA standards regarding quality of care and the fiduciary responsibility of the employer to the employee regarding benefits. The administration of HRAs also fall under HIPAA compliance, which can be complex and cumbersome to follow. It’s worth talking with a third-party administrator (Like us!) to walk you through compliance as it relates to HRAs.
HRAs are set in two categories: integrated and stand-alone. The integration refers to a group health insurance plan and what expenses the employee can use the HRA for their health insurance.
The key point is that most HRAs are integrated because it provides more flexibility for employers and more options for employees.
Here are the different types of HRAs:
These began in the 1960s, as additional payments like deductibles and coinsurance were introduced in health plans. It was codified as a HRA in the 1990s. Typically, standard HRAs have no reimbursement limits and it can cover expenses but not premiums.
For small businesses (defined as 1-49 employees) who don’t offer a group health plan, QSEHRA is designed to offer eligible employees reimbursement on medical care expenses for himself/herself or any covered dependents. Those in a QSEHRA must be in a minimum essential coverage.
The US government introduced ICHRA starting in 2020 to provide more flexibility than the group HRA and QSEHRA. It covers employees for individual health insurance, Medicare Parts A and B, or C. ICHRA covers both premium and qualified expenses and offers more flexibility than other HRAs.
The EBHRA is as the name states, it permits employers to reimburse additional medical care expenses as defined by employers. There’s a cap on how much and what it can be used for. For this reason, it works best as a supplement HRA to another group health plan option.
A cafeteria plan is formally not a HRA but it is something employees should know about. As part of Section 125 of the U.S. Tax code (you’ll sometimes hear cafeteria plans called Sec. 125 plans), this plan allows employees to exchange a taxable benefit, usually their salary, for a nontaxable benefit, their health insurance premiums.
Employers may not allow salary reduction through a cafeteria plan to pay for a portion of Marketplace plan premiums that aren’t covered by an ICHRA. However, employers may allow salary reduction to pay for portions of the premium not covered by an ICHRA for non-Marketplace plans.
In simple terms: If an employee participates in ICHRA, wants coverage outside of Healthcare.gov or Medicare and wants to lower their taxable income, adding a cafeteria plan is a good idea.
HRAs are becoming more popular because of the increased flexibility in health insurance versus a traditional group health insurance plan. But as you can see, no HRA is the same and each provides specific benefits for employees.
We believe that ICHRA is an upgrade to the other HRAs because ICHRA has more options for employees, regardless of the size of the company, or their location.