HRAs offer several practical benefits for employers and employees:
Tax-Advantaged
No matter how much money is put into an individual’s HRA or how much money they withdraw from it to cover expenses, it’s always 100% tax-free. This gives an HRA a distinct advantage over other kinds of savings accounts that may be subject to taxation.
Low-Risk for Employers
Unlike health insurance or other kinds of medical coverage, an HRA carries little risk for an employer. This is because no benefits are paid out to employees until after their claim is filed and adjudicates—thereby reducing the chances of benefit fraud and loss.
There are several different kinds of health reimbursement accounts. Here are a few of the most common HRA account types on the market today:
Qualified Small Employer HRA (QSEHRA)
For any company with less than fifty employees, a QSEHRA may be the best option. With it, employers have full control over their plan’s design and reimbursement allowances. Meanwhile, employees cover their own health insurance and medical bills, providing proof of expenses to their employer who will reimburse them up to a pre-specified limit.
Individual Coverage HRA (ICHRA)
ICHRA accounts operate similarly to QSEHRAs, but they tend to have much more flexibility. They can cater to companies of any size without setting allowance caps. ICHRAs generally look like a group health plan, which makes them appealing to many employers, but they can only be used by employees who are covered by personal health insurance policies.
Group Coverage HRA (GCHRA)
Group Coverage accounts, unlike QSEHRAs and ICHRAs, are available to employers who provide their staff with group health insurance. Only those employees who are covered under their employer’s health insurance are eligible for the GCHRA to cover their out-of-pocket medical expenses.
Before choosing a health reimbursement account, take these factors into consideration:
Only Employers Can Fund HRAs
Unlike other types of savings accounts, HRAs can only be funded by employers. No employee, friend, or family member can contribute funds to the account. The employer has sole control over what money goes into each account they fund.
Money Saved in an HRA Belongs to the Employer
One of the key features that differentiate an HRA from other medical savings account types is that they are 100% employer-owned. This means that if an employee leaves their job for any reason, all of the money that has been accrued in their HRA stays with the company. It cannot transfer to another business or be grown by another company’s funding. It will all revert back to its original source—the employer.
No Rollovers
Generally speaking, companies do not allow HRAs to rollover any money accrued in the account to the next year. Employees who hold HRA accounts must take advantage of the funds offered by the end of each year or lose the amount altogether.
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