A Health Reimbursement Arrangement (HRA) is a benefit plan established by employers to assist employees in paying for medical expenses, including health insurance premiums or out-of-pocket costs that their health insurance plans do not fully cover.
Unlike traditional health insurance, HRAs are employer-funded accounts that reimburse employees for eligible healthcare costs. This arrangement gives employees greater control over their healthcare choices while easing the burden of medical expenses.
Benefits for Employers
From cost savings to attracting top talent, there are a number of benefits businesses stand to gain when setting up a health reimbursement arrangement.
Cost Savings and Tax Advantages
Employers stand to gain significant cost savings by offering HRAs. Contributions made by employers towards employees' HRAs are tax-deductible as a business expense. Employer contributions to HRAs are generally exempt from payroll taxes, providing further financial benefits. Unlike traditional health insurance, employers have complete financial predictability, insulating the business’ PnL from the risk of increased group rates.
HRAs are flexible. Employers can design HRA plans that align with their business's needs and budget. HRA customization includes determining the maximum annual contribution, eligible expenses, and coverage options. Depending on the HRA you choose, you can also vary your employee contributions by employee class, based on criteria like age, part-time or full-time status, location, number of dependents, and more. Customizable plan designs ensure that HRAs can be tailored to meet the requirements of the workforce.
Attracting and Retaining Employees
In today's competitive job market, offering comprehensive benefits is crucial for attracting and retaining top talent. HRAs are highly flexible, providing employees with the freedom to select the most suitable healthcare plan tailored to their specific needs. This flexibility empowers individuals to make informed decisions regarding their health coverage, enhancing their overall satisfaction and well-being. By granting employees the autonomy to choose, HRAs demonstrate a commitment to personalized care, fostering a positive work environment.
Additionally, many businesses that implement HRAs realize significant cost savings and are able to expand their offerings without adversely affecting their bottom line. By investing in the well-being of their employees through expanded health benefits, businesses can create a positive and supportive culture that promotes loyalty and long-term commitment.
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
Benefits for Employees
Not only do HRAs lighten the financial load of medical bills, but they can also offer employees the freedom to pick healthcare choices that truly resonate with individual preferences. Let's dive into the top benefits HRAs offer employees.
Financial Assistance for Medical Expenses
Businesses can choose to replace their traditional health insurance with an HRA or couple an HRA alongside group coverage to expand their benefits. Businesses that replace their traditional coverage with an HRA are often able to expand their health benefits, providing employees with enhanced coverage for various healthcare needs.
In both scenarios, this increased support enables individuals to receive medical treatments, preventive care, and access to specialized services without facing overwhelming financial burdens. By providing financial assistance through HRAs, organizations demonstrate their commitment to the welfare of their employees and contribute to a more secure and healthy workforce.
Flexibility in Healthcare Choices
Unlike traditional health insurance plans with limited networks, your employees can choose their preferred healthcare plan and/or providers. Depending on the HRA you choose, employees can choose any health insurance plan from your state exchange, or for other HRA types, can select the doctors, specialists, and facilities that best meet their healthcare needs. This flexibility empowers employees to make informed decisions about their healthcare, enhancing their overall satisfaction and well-being.
One of the most significant advantages of HRAs for employees is the tax-free nature of reimbursements. When employees are reimbursed for eligible medical expenses from their HRA, those reimbursements are generally tax-free. This means that employees can stretch their healthcare dollars further, maximizing the value of their HRA benefits.
Types of HRAs
HRAs come in different forms, each with its unique characteristics. Here are the main types of HRAs:
Standard Health Reimbursement Arrangement (HRA)
The Standard HRA is a traditional employer-funded arrangement where the employer sets aside funds to reimburse employees for qualified medical expenses. It gives employers control over the contribution amount, covered expenses, and rollover provisions.
Qualified Small Employer HRA (QSEHRA)
The QSEHRA is explicitly designed for small businesses with fewer than 50 full-time employees. It allows eligible employers to reimburse employees for qualified medical expenses, including health insurance premiums, up to a set annual limit. For 2024, the contribution limits for a QSEHRA are $6,150/year for individual coverage and $12,450/year for family coverage. The QSEHRA offers a cost-effective solution for smaller businesses looking to provide healthcare benefits to their employees.
Individual Coverage HRA (ICHRA)
The ICHRA is a versatile option that allows employers of any size to offer individual health insurance coverage to employees while providing reimbursement for premiums and other eligible medical expenses. The ICHRA will enable employees to choose and purchase their preferred health insurance plans tailored to their needs. The ICHRA also allows employers to categorize employees into different classes based on criteria such as full-time status, geographic location, or job position, allowing for customized healthcare options that meet the diverse needs of their workforce.
Excepted Benefit HRA (EBHRA)
The EBHRA is a limited-purpose HRA that provides additional benefits beyond the primary health plan. It typically covers expenses like vision, dental, or specific wellness services. EBHRA serves as a supplement to the primary health insurance plan, giving employees access to additional benefits.
Setting Up an HRA
The process of setting up an HRA involves several key steps. Let's explore them:
Not all HRA types are available to all employers. Review the HRA types section above for information about which HRAs are available to which employers. Once you determine your HRA type, employers need to determine which employees are eligible for the plan benefits. This can include factors such as employment status, hours worked, and length of service. Some HRAs also offer the ability to create employee classes, where you can set different reimbursement levels for your employee classes. Clear guidelines should be established to ensure fairness and consistency.
Plan Design Considerations
Employers can customize the HRA plan design to align with their business goals. This includes determining the maximum annual contribution, eligible expenses, coverage limits, and carryover or rollover provisions. It is essential to balance meaningful benefits with cost management considerations. Liferaft’s HRA experts make it easy for you to design the best HRA plan for your business—schedule your free consultation with us to get started.
Enrollment and Communication Process
Effectively communicating the HRA plan to employees is essential. Employers should provide clear instructions on enrolling in the HRA, submitting claims, and understanding the reimbursement process. Open and transparent communication ensures employees know the benefits and can take full advantage of the HRA.
HRA Administration with Liferaft
Liferaft is a trusted and affordable HRA administrator for businesses of all sizes. Liferaft simplifies the entire HRA administration process, making setting up and managing an HRA for your employees easy.
The Most Affordable HRA Administrator
Liferaft stands out as the most affordable HRA administrator offering cost-effective business solutions. Liferaft provides both advanced platform features and significant savings compared to other HRA administrators, making it an attractive choice for cost-conscious employers. You can explore our HRA Pricing here.
User-Friendly Platform and Features
Liferaft's user-friendly platform streamlines the entire HRA administration process. Employers can easily set up customized HRA plans, enroll employees, manage claims, and access detailed reporting. The intuitive interface ensures a hassle-free experience for both employers and employees.
Simplified Plan Setup, Claims Processing, and Reporting
With Liferaft, employers can quickly and efficiently set up HRA plans tailored to their specific requirements. Liferaft simplifies the claims processing and reimbursement procedures, ensuring timely and accurate employee reimbursements. Unlike other HRA administrators, Liferaft offers a fully automatic reimbursement process—with approved claims deposited into employee bank accounts within days. Detailed reporting features provide valuable insights into HRA utilization and spending patterns.
Compliance and Legal Considerations
HRA compliance with healthcare regulations and legal requirements is crucial when implementing an HRA. When you administer your HRA through Liferaft, it is easy for employers to comply with all applicable laws. Here are some key provisions to keep in mind.
HIPAA and HRA Privacy
Employers must ensure the HRA administration complies with the Health Insurance Portability and Accountability Act (HIPAA). Safeguarding employee privacy and protecting personal health information is of utmost importance.
The Employee Retirement Income Security Act (ERISA) sometimes applies to HRAs. Employers must understand their responsibilities and comply with ERISA regulations, including providing plan documents and summary plan descriptions to participants.
COBRA Continuation Coverage
Employers subject to the Consolidated Omnibus Budget Reconciliation Act (COBRA) must offer continuation coverage to eligible employees who experience a qualifying event, such as termination of employment. When providing a QSEHRA or ICHRA, managing COBRA compliance becomes streamlined due to employees already being enrolled in individual health plans. Employers offering HRAs should understand their obligations related to COBRA continuation coverage.
Integrating HRAs with Health Insurance Plans
HRAs can be effectively integrated with health insurance plans, complementing existing coverage options. Here are some integration possibilities:
Coordination with Group Health Insurance
Employers offering group health insurance plans can coordinate HRAs to provide additional financial support for employees. HRAs can cover deductibles, co-pays, and other out-of-pocket expenses, enhancing the overall value of the health insurance plan. HRAs can also be a cost-effective way to expand coverage to specialty care like IVF treatment or mental health care.
Integration with Qualified High-Deductible Health Plans (HDHPs)
HRAs can be integrated with qualified high-deductible health plans (HDHPs) to create a comprehensive healthcare solution. The HRA can help employees meet the high deductibles associated with HDHPs, reducing their financial burden while maintaining access to cost-effective insurance coverage.
A Client Example in Minnesota: How This Company Saved $144,000/year
Liferaft worked with a digital media company in Minnesota that had 35 employees. They were providing their team with major medical coverage through Blue Cross, but when their rates increased, they knew they had to find a better solution.
Before switching to an HRA, they spent $26,500 monthly, up to $318,000 yearly. That's a substantial cost for any business. But after partnering with Liferaft and implementing an HRA, their monthly costs dropped to $14,500, amounting to just $174,000 annually.
They saved a staggering $144,000 a year! And the best part is they didn't have to compromise on the quality of coverage they offered to their employees. With Liferaft's HRA, they found a way to provide excellent healthcare benefits while keeping their budget in check.
A Client Example in California: Offering Benefits for the First Time
When a small physical therapy business in California wanted to provide health benefits to their team for the first time, they faced challenges finding affordable and flexible options within the group health market. They discovered that the plans available were expensive and came with strict participation requirements that didn't meet their needs.
Enter Liferaft's Health Reimbursement Arrangement (HRA). Liferaft presented the business with three different plan options that were both affordable and high-quality. The employees had the freedom to choose their preferred plan level and type. What made it even more appealing was that these plans were more affordable in the individual market, enabling the employer to cover 100% of their employees' monthly premiums. Setting up the Liferaft HRA was a simple and quick process.
The cost savings achieved through the individual market allowed the employer to have the flexibility to reimburse each employee's monthly premium in full. This amounted to only $33,320.40 annually, providing significant savings compared to traditional group plan options.
Frequently Asked Questions
Can employers contribute different amounts to each employee's HRA?
Employers can contribute varying amounts to each employee's HRA based on the chosen HRA type and plan design. Depending on the HRA type, employers can create employee classes and customize distribution amounts for full-time or part-time status, age, location, number of dependents, salary or non-salaried positions, and more. By tailoring the contribution amounts to specific employee classes, employers can provide targeted support and address the unique healthcare needs of their workforce. This ability to personalize HRA distribution amounts ensures a fair and equitable approach, fostering employee satisfaction and engagement with their chosen healthcare plans.
Can HRA funds be rolled over to the next year?
It depends on the plan design. Some HRAs allow for the rollover of unused funds, while others have a "use it or lose it" policy. Liferaft can help you customize your HRA plan, including rollover provisions if desired.
Are there limitations on medical expenses that can be reimbursed through an HRA?
Generally, qualified medical expenses can be reimbursed through an HRA. Eligible expenses are defined by the IRS and your plan’s documents and can include doctor visits, prescriptions, and specific medical treatments. Liferaft will guide employers on the qualified expenses to ensure compliance.
Can HRAs be offered alongside other employee benefits?
Absolutely! HRAs can be integrated with other employee benefits, including retirement plans and flexible spending accounts (FSAs), to create a comprehensive benefits package.
How can Liferaft simplify HRA administration for my business?
Liferaft's user-friendly platform streamlines the entire HRA administration process, from plan setup to claims processing and reporting. Their affordable pricing and dedicated customer support make them an excellent choice for businesses of all sizes.
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.