There are several different acronyms when it comes to health spending accounts, such as Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs). These accounts all work similarly as they are used to accrue and set aside funds for medical expenses.

This article will breakdown just what each of these acronyms means and dive deep into the different type of HRAs available for your business.

Each of these account types have distinct rules and requirements, but any type of company can find one that fits its needs.

An FSA is a type of spending account that allows employees to set aside pretax money from their paycheck to cover qualified healthcare expenses incurred during the plan year. Eligible expenses include copayments, deductibles, prescription drugs, and other out-of-pocket healthcare costs not covered under your regular health insurance plan. You can offer your employees access to a Flexible Spending Account (FSA) along with an HRA.

Unlike HRAs, FSAs are employee-funded rather than employer-funded through a salary reduction.

An HSA is a tax-advantaged savings account used to pay for qualified medical expenses. Unlike an HRA, contributions to an HSA can be made by either the employee or the employer, and both may claim a federal tax deduction on their annual income taxes. Withdrawals from an HSA can be used to pay for vision care, dental care, prescriptions, and other out-of-pocket costs not covered by health insurance plans.

Employers can offer an HSA and an HRA at the same time if they are using an Expected Benefit HRA alongside a qualifying high-deductible group coverage plan.

Recent years have seen a dynamic shift in Health Reimbursement Arrangement regulations, giving employers increased flexibility and greater options. For example, HRAs can now be used to reimburse individual healthcare premiums, while fewer restrictions allow for part-time or seasonal workers and retirees to benefit from the plan. 

See below for information about some of the most popular and flexible HRA options.

At Liferaft, we understand that navigating these changes may seem daunting at first – so our team of experts is on hand with free professional advice regarding setting up your HRA plans according to your specific needs. From selecting which benefits are most suitable for your business requirements to creating documentation ensuring maximum value from the plan, let us help ensure employees get the best out of their Health Reimbursement Arrangements.

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. 

Employers must establish reimbursement limits as well as policies concerning any unused funds at year-end, which could then be rolled over into subsequent years. However, organizations can limit total carryovers and grant employees access to remaining funds should they cease being covered by major medical plans.

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. 

A QSEHRA allows employers to give their employees more choice in spending their allotted funds while allowing them access to additional Health FSA or HSA options that add further flexibility when paying out and receiving benefits.

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 specifically 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. Thus, it is possible for businesses, both large and small, to offer comprehensive forms of healthcare at budget-friendly costs that exceed traditional group plans significantly in flexibility. 

If you're an employer aiming towards cost efficiency when supplying benefits packages, exploring the possibilities offered through adopting an ICHRA could prove invaluable.

For employers looking for an effective and generous way to provide their employees with health-related support, the Excepted Benefit HRA (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.

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 below.

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.

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.