As a small business owner, you are likely familiar with two of the most important health care benefits offered to employees: Health Reimbursement Accounts (HRA) and Health Savings Accounts (HSA). These benefits serve different purposes and can be used in tandem to provide comprehensive coverage for your employees’ medical needs. In this blog post, we will explain how HRAs and HSAs work together, what their key distinctions are, and why it makes sense for employers to offer both options as part of their employee benefits packages. Read on to learn more about these important health-care options!
What is a HSA?
A Health Savings Account, or HSA, is a type of savings account that offers tax benefits for people who are enrolled in a high-deductible health plan. An HSA can be used to pay for qualified medical expenses, including doctor visits, prescriptions, and dental care.
What is a HRA?
Health Reimbursement Arrangements, or HRAs, are another way that employers can reimburse employees for medical expenses. HRAs are employer-funded accounts that can be used to reimburse employees for qualified medical expenses. Unlike HSAs, HRAs are not subject to federal income taxes.
If you are willing to offer your employees both a HRA and an HSA, you need to have an understanding of how the two benefits interact with each other in order to get the most out of each. For example, if an employee has a high deductible health plan, they may be able to use their HSA to pay for their deductible. However, if an employee has a low deductible health plan, they will not be able to use their HSA to pay for their deductible. Instead, the employee would have to use their own money or credit card. In this case, it may make more sense for the employer to fund the entire HRA themselves. By offering both a HRA and an HSA, you can give your employees the flexibility to choose the benefits that best meet their needs.
The Different Types of HRAs
First, let’s take a look at the different types of HRAs you can offer your employees. There are integrated HRAs, which are offered alongside traditional group health insurance, including:
There are 5 different HRA types to choose from to offer your employees.
- ICHRAs (Individual Coverage Health Reimbursement Arrangements), which allow tax-free reimbursement of benefits for any size business, and for any amount. Healthcare.gov describes them as an alternative to group health insurance plans. To learn more about different types of group health plans, read our detailed breakdown here.
- EBHRAs (Excepted Benefit HRAs), which are limited to paying for excepted benefits, such as premiums for vision and/or dental coverage and premiums for plans that are exempt from ACA rules (short-term plans).
Standalone HRAs do not have to be tied to a group plan. These include:
- QSEHRAs (Qualified Small Employer HRAs) – These are meant for businesses with less than 50 employees that do not offer a group insurance plan. Business owners can set up a QSEHRA for their employees to help pay for benefits tax-free.
- Spousal HRAs– These are for employees who are covered by a spouse’s group plan. They cannot be used to reimburse employees for their premium payments.
- Retiree HRA– These are for former employees. They allow you, the employer, to help pay for any retired members’ insurance premiums and medical expenses.
When Offering Both HSAs & HRAs
If you’re looking to offer your employees health savings accounts, there are a few things you need to know first. In order for your employees to be eligible for an HSA, they must have a high-deductible health insurance plan (HDHP) that is HSA-qualified. If you choose to offer both a health reimbursement arrangement (HRA) and an HSA, then the HRA has to follow the same rules as a HDHP, and cannot begin paying out until your employee’s minimum “deductible” amount is met. However, there are also some benefits to offering an HRA alongside an HSA. One benefit is, HRAs are typically funded by employers, they can also help to control rising healthcare costs. On top of that, it can help to attract and retain the best talent. Additionally, offering the two together will help your employees better manage their healthcare costs.
Another way to offer a HRA that is HSA-qualified is by offering a limited-purpose HRA that only reimburses employees for expenses that are exempt from the HSA deductible requirement. Expenses exempt from the HSA deductible are:
- Health insurance premiums
- Long-term care premiums
- Wellness and preventive care such as check-ups and quitting smoking or weight loss programs
Helping your employees with their healthcare costs is a great idea, but it’s also important to think about how you can help offset the cost of group insurance. One way this might be done? Offering both an HRA and HSA! It works if you follow the guidelines mentioned. That way everyone can benefit from these arrangements. If you are unsure or need some help, then we can assist you.
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