Regulations for HRA accounts, frequently known as Health Reimbursement Account regulations, HRA Payment regulations, Health Reimbursement Arrangement Regulations or HRA Regulations, are a crucial step in comprehending Health Reimbursement Arrangements. Initially, HRAs may appear quite simple — an employer selects an HRA option and establishes a budget. When an employee pays a premium or incurs medical expenses for a procedure, the employer reimburses them. However, the regulations governing HRA accounts can be somewhat perplexing. Below are some HRA account regulations for employers that you’ll need to understand.
What do the Guidelines for HRA Accounts Entail?
HRA Account Rules represent the established regulatory guidelines that ensure fair and proper administration of HRAs.
Employers and employees need to be mindful of certain HRA account regulations and guidelines, which may differ based on the type of health reimbursement arrangement HRA being provided.
Two recently introduced options, the Qualified Small Employer HRA (QSEHRA) and Individual Coverage HRA (ICHRA), also have their own, more specific guidelines. Take Command’s small business tax strategy HRA guide can help guide you to the most suitable one for your business.
While these tax-advantaged accounts share similarities with familiar flexible spending accounts, there are some crucial distinctions, namely that HRA funds can be utilized to pay for health insurance premiums. Similar to flexible spending accounts, unused funds remain with the employer (unless the employer offering the HRA chooses to allow rollovers from year to year).
→ Delve deeper into common HRA compliance concerns.
HRA account regulations are a crucial step in comprehending Health reimbursement arrangements.
What are the regulations for health reimbursement accounts for?
HRA regulations, or health reimbursement arrangement regulations, are designed to ensure fair treatment of all employees. Health reimbursement arrangements HRAs are intricate, thus it’s crucial to thoroughly understand the regulations to guarantee employer compliance.
Before delving into HRA account regulations, let’s quickly review the types of HRAs we are discussing.
- Integrated HRAs work in conjunction with a traditional group health insurance plan to reimburse out-of-pocket medical expenses and are typically paired with co-pays, co-insurance, and deductibles. ICHRAs are highly adaptable regarding group size; EBHRAs cover non-medical or exempt benefits such as vision or dental, long-term care, or COBRA extensions.
- Standalone HRAs like QSEHRAs (pioneered in 2017) can aid teams of fewer than 50 who lack a group plan option to cover benefits tax-free. Spousal, retiree, and Medicare HRAs can assist in bridging or reimbursing certain benefits.
Regulations for ICHRA & QSEHRA
Here’s a convenient list of HRA account regulations to keep in mind.
Size of the Organization
Typically, organizations of any size can offer an HRA. While ICHRAs are accessible to employers of any size, the precursor, QSEHRA, is specifically for companies with fewer than 50 employees who were not previously required to provide health insurance.
Contribution Limits
ICHRA is not bound by any contribution limit in terms of reimbursement rates, whereas QSEHRA has a limit. For 2024, the maximum allowance for QSEHRA contributions for businesses with fewer than 50 employees is $6,150 for individual employees and $12,450 for employees with a family.
Eligibility of Owners
Whether self-employed owners can participate in an HRA depends on the plan and business setup! For a business owner to take part in a QSEHRA, they must be considered an employee of the business. Since C-corps are legally distinct from their owners, a business owner and their dependents can utilize QSEHRA. Given that S-corp owners are not employees, they typically cannot participate in QSEHRA. Partners and sole proprietors can participate under certain loopholes — if a partner or sole proprietor’s spouse is a W-2 employee, then the partner or sole proprietor can partake in the HRA as a dependent of the spouse.
Eligibility of Classes
HRAs need to be equitably and fairly offered to all employees, but the approach varies between QSEHRA and ICHRA. While QSEHRA eligibility can only be adjusted based on family size or age, ICHRA provides enhanced efficiency through its class feature, which enables employers to categorize employees into an almost limitless range of custom classes receiving varying reimbursement rates. Employers can offer ICHRAs to all eligible employees or to only specific classes of employees. Certain special regulations apply, but generally, individual classes are determined by job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One notable rule here is that while ICHRA can be offered to one class and group plan coverage to another, an individual cannot be offered both.
Assessing Affordability for Tax Credits
An ICHRA is deemed affordable for an employee if the out-of-pocket premium paid by an employee for the Silver marketplace benchmark plan is lower than a specific percentage of the employee’s income. The percentage to be used for the 2024 plan years is 8.39% (a decrease from 9.12% in 2023). If the offer is affordable, the employee is ineligible for the premium tax credit for Marketplace coverage; if it is unaffordable, the employee must opt out of the ICHRA to qualify for the tax credit.
Employee Choices
The objective of the HRA is to offer flexibility to employers and employees; however, one type of choice is prohibited — an employer cannot provide the same class of employees with a choice between a traditional group health plan and an ICHRA. If an employer wishes to provide group plan coverage to one type of employee and an ICHRA to another type, there are size requirements for certain classes of employees. Employers also need to ensure that plans meet basic coverage requirements: There are specific regulations for qualified health plans integrating with ICHRAs and Minimum Essential Coverage plans for QSEHRA.
Employee Utilization
To utilize the individual coverage HRA amount, employees must be enrolled in individual health insurance coverage — either by purchasing a plan through the ACA marketplace or through a private insurance company, or through Medicare.
Commencement Dates
Both QSEHRA and ICHRA can be initiated at any time. A recent regulatory change this January now permits individuals offered a QSEHRA to qualifyfor a Special Enrollment Period. ICHRAs additionally activate Special Enrollment Periods, meaning that workers will have a much simpler time finding a plan on the individual insurance market rather than having to wait for open enrollment.
Compensation
HRAs need to be established as a formal health scheme under IRS and ACA guidelines. Employers cannot casually compensate or expense out medical costs — otherwise, they could face penalties. Utilizing an ICHRA or QSEHRA administration tool will keep you out of trouble and both HRAs will provide tax advantages to help economize on benefit costs.
Health savings account interaction
HRAs and HSAs, which are financed both by the employee and the employer, can be used together, but there are several account regulations. An ICHRA has to be arranged to reimburse only premiums in order for the employee to make contributions to their HSA — an employee cannot “double dip” by using the HSA and employer compensations to pay for medical procedures. Employees can choose that setup on an ICHRA; for QSEHRA, an employer has to offer that to set up to all of his employees or to none of them. The IRS also ascertains the criteria for HDHP plans that provide HSAs.
Management
Employers are strongly advised not to oversee their own HRA scheme if an employer reimburses employees for health insurance premiums, due to federal privacy requirements. Of course, employers have to verify that employees are using funds to pay for health insurance and medical expenses — but having employees submit receipts risks penalties for HIPAA violations. It’s best for employers to entrust administration of schemes into someone else’s hands. Fortunately, there are HRA administration tools available.
HRA Rollover Rules
ICHRA and QSEHRA roll over month to month, but it’s at an employer’s discretion as to whether to allow employees to rollover unused funds each year. We generally observe no rollover allowed, meaning it’s a use it or lose it situation and the unused funds remain with the employer.
Require assistance comprehending HRA account rules?
Our team of consultants is ready to aid you in comprehending how HRA account rules affect you and your business. We are delighted to assist. Just converse with us on our website!
Also, check out our new HRA Guide that will guide you through all the intricacies of providing a health reimbursement arrangement.
This post was originally written in 2020 and has been updated for 2023 to reflect the exciting changes going on in the HRA world.
