Is an HRA Right for Your Business?

Health reimbursement accounts (HRA) are growing in popularity. According to federal government officials, approximately 800,000 employers will offer an HRA to their 11 million employees and their family members this year. And why not? An HRA is an IRS-approved, employer-funded health benefit that allows you to make health insurance available to employees without being constrained by the limitations of traditional group insurance. They also offer an array of tax advantages.

Is an HRA right for your business? Here’s a look at three questions you’ll want answers to before you decide:

1. What is an HRA?
A health reimbursement arrangement, which is also called a health reimbursement account, is a health benefit employers can use to help their workers access health insurance. It’s approved by the IRS, funded by employers and comes in the form of a monthly allowance of tax-free money employees can use to purchase health care products and services they want and need–including health insurance.

It is a more affordable way to make health insurance more accessible to your employees than paying for a full range of healthcare benefits. Because the employer gets to choose the amount of the allowance, an HSA is an especially valuable tool for small businesses that cannot afford to make group health insurance available to employees.

In addition, an HRA can also satisfy the requirements of the Affordable Care Act, which requires employers with 50 or more full-time equivalent employees to offer a health plan that meets minimum essential coverage to 95 percent of FTE employees and their dependents.

2. What types of HRAs are available?
There are six HRAs from which to choose:

• the qualified small employer HRA (QSEHRA), which is only available to employers with fewer than 50 employees,
• the individual coverage HRA (ICHRA), which any business can access as long as their employees are covered by an individual health insurance plan or Medicare,
• the group coverage HRA, which requires employees to be covered by a group medical plan,
• the excepted benefit HRA, which caps annual reimbursements at $1,800,
• the dental/vision HRA, which only provides reimbursements to expenses related to dental and vision care, and
• the retiree HRA, which only provides reimbursements to retirees.

Which type of HRA is right for you depends on a variety of factors, including how many employees you have, their needs and how much you can afford.

3. How does it work?
While each HRA offers its own set of advantages, all six typically follow the same five-step process:

1. The employer sets the allowance amount;
2. Employees purchase health care products and services they want and need, which could include health insurance;
3. Employees submit documentation that shows they have purchased HRA-qualified products and services;
4. The employer reviews the documents to confirm the service or product was purchased, the date and the amount;
5. Once confirmed, the employer reimburses the employee for the purchase, up to the allowance amount.

Typically, an HRA can be used to pay for a variety of products and services, including health insurance premiums, dental premiums, vision premiums, policy deductibles, copays, office visits, prescription drugs and other health-related expenses.

Is an HRA Right for You?
Offering an HRA to your employees can be a smart business decision, but it can also be complicated. For help deciding if an HRA is right for you, connect with Flagler Financial today. You’ll get the expert advice you need to make decisions that work for your company and your employees.