Insurance

Why Companies Are Switching to a Health Reimbursement Arrangement (HRA)

A Liferaft Health Reimbursement Arrangement is more affordable, customizable, and flexible than group health plans. With a Health Reimbursement Arrangement, you can reimburse your employees for insurance premiums or medical expenses not typically covered by their health plan.

March 3, 2023

What is an HRA?

A Health Reimbursement Arrangement (HRA) is a health spending account that an employer can set up to reimburse employees tax-free for out-of-pocket healthcare expenses. The funds in the account can cover a wide range of healthcare costs, including health insurance premiums, co-pays, and dental and vision expenses. 

Unlike traditional health plans, HRAs are more tailored towards an employee’s individual needs as well as being cost-effective and low maintenance for companies to manage.

How an HRA works

Liferaft’s Health Reimbursement Arrangements allow you to tailor a plan that makes sense for your organization. Our dedicated team will provide expert guidance, curate health insurance plans tailored to fit employees’ specific needs, and help easily streamline onboarding. We are here every step of the way to ensure a smooth transition for your company.

  • Design your benefit: Decide how much tax-free money to offer each month, which expenses should be eligible for reimbursement, or offer various benefits to different employee groups.
  • Employees purchase qualifying expenses: Allowances can be used for qualifying medical expenses and healthcare services, including prescription glasses, healthcare premiums, physical therapy, and more.
  • Employees reimbursed: Our user-friendly 100% digital experience makes it easy for you and your employees to submit a claim and get reimbursed for eligible expenses.

Your guide to flexible & affordable benefits — download now.

Group health can be complex, restrictive, and costly. Liferaft offers something different.

Liferaft's 2023 Whitepaper on HRAs is the most comprehensive guide available, giving you what you need to determine if an HRA makes sense for your business.
You will automatically be redirected to your whitepaper download after submission.
What you get in your guide:
• What is an HRA?
• HRA Requirements & Features
• Eligible HRA Expenses
• When an HRA Makes Sense
• Different HRA Types
• States Where HRA Works Best

The types of HRAs

Standard HRA

The Standard HRA, or Group Coverage HRA, provides additional coverage to those with group health insurance through their company or spouse. Employees can utilize this plan to reimburse various medical expenses, not including premium payments - without federal limits on how much funding they may receive. 

QSEHRA

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) provides small businesses and nonprofits with fewer than 50 full-time employees a streamlined solution for healthcare reimbursement. Through this arrangement, employers can reimburse their workers' qualified expenses as outlined by the IRS, such as individual health insurance premiums, without having to manage a laborious group plan. 

ICHRA

The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers employers a streamlined and agile solution for providing health coverage to their employees. This reimbursement structure allows employees to choose an individual insurance policy tailored to their needs while the employer sets allowable limits on associated expenses. 

ICHRAs are available regardless of company size and require eligible staff members to be covered by an individual policy or Medicare; however, other regulations may apply in certain cases. 

Expected Benefit HRA

For employers looking for an effective and generous way to provide their employees with health-related support, the Excepted Benefit Health Reimbursement Arrangement (EBHRA) is a sensible option. 

It features higher employer contribution limits ($2,100 per year for 2024) than other alternatives, such as flexible spending arrangements (FSAs), and provides benefit rollover from one plan period to another. An EBHRA is ideal for covering dental care expenses, vision costs, and short-term insurance premiums, which traditional group healthcare plans may not cover in full or at all.

Side-by-Side Comparison

When you set up your Health Reimbursement Arrangement with Liferaft, our team will give you free professional advice about how to best set up and structure your HRA plan(s). We'll help you choose the right mix of benefits for your business, create your HRA plan documents, and ensure that your employees are getting the most out of their HRA.

See how the different types of HRA plans compare with each other in the chart below.

Want a printable version? You can download this side-by-side comparison here.

Frequently Asked Questions

Are Health Reimbursement Arrangements considered income?

According to the IRS, employer-issued reimbursements are not considered income and are exempt from federal income and payroll taxes. This is one of the significant tax benefits of distributing employee benefits through a Liferaft Health Reimbursement Arrangement.

What happened to unused funds? Do they roll over?

One of the central values of a Liferaft Health Reimbursement Arrangement is flexibility, and the answer here depends on the employer’s specific policies. Some companies may have a "use it or lose it" policy regarding account funds, meaning that any funds not used by December 31st will be forfeited and cannot be carried over into the new year. Other employers allow employees to roll over a certain amount of money from one year to the next. Put plainly—it’s up to you!

What are some disadvantages of an HRA?

Because the funds in a Liferaft Health Reimbursement Arrangement are employer-funded, the employer owns the money in the account even though it is for the individual to use. If the person leaves the company or their job is terminated, the account funds stay behind with their former employer.  Employers can offer a retirement account that allows former employees to utilize funds after leaving the company.

Additionally, different employers often have different rules for reimbursement, which can be a problem for employees if they switch companies. Aside from mandatory requirements like COBRA continuation, ERISA and HIPAA, plans can vary widely.

Which employees are eligible for a Liferaft Health Reimbursement Arrangement?

Liferaft Health Reimbursement Arrangements can be offered to any employee, as long as each job class is treated equally. This means you can easily provide benefits to part-time and seasonal employees. However, depending on what type of expenses you plan on reimbursing, there are specific IRS requirements. After learning about your business and goals, Liferaft will make a plan recommendation for the most tax-advantaged, affordable way to structure your account.

Book your consult with Liferaft

Our team knows the ins and outs of the health insurance marketplace and will guide you towards the solution that make the most sense for your business and your team. Come with questions! Our experts are happy to dig into the details to get you the clarity you need.

During the call, Liferaft will run a cost-benefit analysis on your company's current healthcare spending and show you different ways you can save—without sacrificing plan quality. After your consult, Liferaft will design a unique plan for your employee's health insurance, including suggested plans and accounts, plan policy documents, and the annual budget.

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