Integrated HRAs and EBHRAs: A Detailed Guide
The introduction of the Affordable Care Act (ACA) resulted in a slew of changes in the health insurance industry, including several market reforms aimed at providing consumers with more protection and benefits.
Moreover, group health plans and group health coverage were significant targets of the ACA's market reform objectives, given the majority of employed Americans with health insurance got it via an employer plan (or through some connection with an employer program or plan).
Employers can complement their benefits with tax-advantaged health reimbursement plans (HRAs).
In today’s article, we’ve focused on two forms of HRAs: excepted benefit HRAs (EBHRAs) and integrated HRAs. These can help firms better cover their employees' healthcare demands while also allowing them to be more cost-effective.
Let’s take at the table of content that we’ll cover in this guide:
- Understanding HRAs
- Working of HRAs
- Understanding EBHRAs
- Working of EBHRAs
- Understanding Integrated HRA (GCHRA)
- Requirements for an HRA to be considered as an EBHRA
- Reimbursement in EBHRAs
- Employers Eligible to Provide an EBHRA
- Employers offering EBHRAs
- Regarding Unused Funds
- Possibility of Having Both EBHRA and HSA or an ICHRA
- Key Points on GCHRA and EBHRA
- Frequently Asked Questions (FAQs) on HRAs and EBHRAs
Lets Start!
Understanding HRAs
The HRA or health reimbursement arrangement is a type of employer-funded plan that an employer owns and provides to its employees.
Further, these funds are used to cover qualified expenses such as medical expenses, pharmaceutical, dental, and vision care, as decided by the employer.
Employers can deduct the reimbursements they make under these programs from their taxes, while reimbursement payments received by employees are usually tax-free.
Other important facts to remember about HRAs include:
- An HRA can only be funded by your employer
- Your company decides whether or not to carry over any unused funds from one year to the next
- You don't have to pay taxes on money from an HRA
Moreover, HRAs give employers more control over how they operate and provide more alternatives than other health expenditure accounts.
Working of HRAs
A health reimbursement agreement is a plan established by an employer to compensate its employees' medical expenses.
Moreover, the employer determines how much it will invest in the plan, and the employee can be reimbursed for actual medical costs up to that figure.
The HRA contribution must be the same for all employees in the same class.
Furthermore, an HRA is not the same as a bank account. Employees are unable to take out funds in advance and then utilize them to cover medical bills. Instead, they must first incur the expense before being paid.
Reimbursement can be given at the time of service if the employer provides an HRA debit card. If an employee's HRA funds are depleted before the end of the year, he or she will have to pay for any further medical expenditures out of pocket or with funds from a flexible spending account (FSA) for high-deductible health plan employees (HDHP).
Keep in mind that a flexible spending account (FSA) is also known as a health savings account (HSA).
Understanding EBHRAs
Employers who continue to provide regular group health insurance can additionally offer Excepted Benefit HRAs to their employees (EBHRAs).
Employers can contribute up to $1,800 per year in the form of an Excepted Benefit HRA (EBHRA) to reimburse employees for out-of-pocket medical expenses. It further includes COBRA premiums, copays, deductibles, dental and vision coverage, and long-term care.
Moreover, employers of any size can offer them if they want to complement their group health coverage with an account-based supplement without being bound by the standards for integrated HRAs.
Even if employees decline group health insurance, they can join in an "excepted benefit HRA," but they cannot use the funds to purchase complete health insurance.
They can, however, put the money toward short-term health insurance, dentistry and vision insurance premiums, and other eligible medical expenses.
EBHRAs are limited HRAs that serve as exempted benefits and are thus exempt from the PHSA's requirements.
Note: For plan, years beginning on or after January 1, 2020, and for the calendar year after, an employer could provide up to $1,800 in an Excepted Benefit HRA.
The employer establishes a 12-month plan year for all EBHRAs.
Every year, this amount will be assessed and, if necessary, adjusted to account for inflation.
Other important facts that make EBHRAs appealing includes:
- Both companies and employees benefit from the EBHRA because it is tax-free
- To participate in the EBHRA, employees do not need to enroll in their employer's group health care plan
- Employers can grant varying allowance amounts to different groups of employees who are in comparable situations
- The EBHRA covers deductibles and deductibles, as well as COBRA continuing coverage, dental and vision insurance, short-term limited-duration insurance, and long-term care insurance
Working of EBHRAs
The employer must first decide on the plan design before establishing an EBHRA. This includes the benefit amount, employee eligibility, reimbursement kinds, and more, as discussed further in this article.
Following that, the material is codified in a written plan document. The plan document bundle includes the summary plan description (SPD), which must be delivered to all workers qualified to enroll in the EBHRA at least 30 days prior to the start of each plan year.
The summary plan description (SPD) contains information on the plan as well as the employer, its agent(s), the employer's obligation, the plan administrator, employee responsibilities, and numerous required disclosures.
The Core EBHRA Plan Document from Core Documents simplifies everything by costing only $199.
Furthermore. this package includes everything companies need to get the EBHRA up and running as an IRS and DOL-approved tax-saving benefit plan.
Understanding Integrated HRA (GCHRA)
GCHRAs, also referred to as integrated HRAs, are another option for businesses of any size. They provide a tax-free reimbursement alternative for companies who desire more control over their healthcare spending, as long as employees have qualifying expenses.
Furthermore, workers must be registered in the employer's group health plan to join, unlike EBHRAs. Employers who have GCHRAs are required to furnish a group coverage plan that complies with MEC criteria.
Typically, GCHRA-compliant firms offer high-deductible health plans (HDHPs), which have lower premiums but less coverage.
In addition, unlike EBHRAs, GCHRAs have no cap on employer payments. Employers can determine their own reimbursement allotment for workers to use every month toward out-of-pocket expenses by employing a GCHRA.
Furthermore, employers usually define the maximum monthly reimbursement allowance, with any cash left over being rolled over from month to month.
The arrangements are designed to assist in the payment of expenses not included in the group plan. Employees will not be able to request reimbursement for their insurance premiums as a result of this.
Employees can instead apply these monies to their deductibles, coinsurance, copayments, and approved medical expenses, but not to their employer-provided group insurance premiums.
Employers can set their own regulations for minimum deductibles, cost-sharing, benefit explanations, and the expenses that the GCHRA will cover.
Moreover, employees may be forced to pay deductibles, coinsurance, and copays (in addition to those needed by the group plan) before being reimbursed.
When combined with tax-free reimbursements through a GCHRA, these guidelines can help businesses take greater control of costs while allowing their employees to benefit from the reduced premiums of an HDHP.
Employers can make varying allocations to different employee classes, just as they can with EBHRAs, and excess funds can be rolled over yearly if desired.
Requirements for an HRA to be considered as an EBHRA
Following we have listed the requirements for an HRA to be considered an EBHRA. Let’s take a look:
- The maximum annual contribution is limited to $1,800
- Employers must provide the EBHRA in combination with a traditional group health plan; however, EBHRA participants are not required to enroll in the standard group health plan; they must only be offered coverage
- Group health insurance plan premiums (excluding COBRA), individual health insurance plan premiums, and Medicare premiums are not eligible for reimbursement under the EBHRA
- All equally qualified employees must have access to the EBHRA
- Employers are not permitted to provide both an ICHRA and an EBHRA to the same employee
Reimbursement in EBHRAs
The term "excepted benefits HRA" can be quite confusing because it refers to a different sort of HRA that only reimburses so-called "excepted benefits."
Excepted benefits are health insurance plans or coverage that are exempt from certain regulations under the Affordable Care Act, such as dental, vision, and, in general, short-term medical insurance.
In addition, an EBHRA covers limited-scope vision and STDLIs (short-term limited-duration insurance), dental insurance, COBRA continuation coverage, co-pays and/or deductibles, as well as long-term care coverage like nursing care or home health care.
Only such perks may be reimbursed by some HRAs. Employees can be reimbursed for both excluded benefits and other eligible out-of-pocket expenses through EBHRAs.
Other objects that qualify include:
- Continuation of COBRA
- Dental and vision insurance with a limited scope
- Premiums for short-term, limited-duration insurance
- coverage for long-term care (nursing home care, home health care, community-based care, etc.)
- Co-pays, deductibles, and other qualified medical expenses are shared in the cost
While an EBHRA can cover any medical or dental expense that is eligible for a federal income tax deduction, employers can decide and select which of those costs they want to cover.
Employees should review the plan paperwork to see if a certain expense is covered.
EBHRAs, unlike other HRAs like the QSEHRA, cannot compensate employees for premiums that aren't considered an excluded benefit.
Furthermore, individual health insurance premiums, group health plans (other than COBRA), and Medicare Parts A, B, C, and D are all examples.
Only premiums for pre-approved benefits, such as vision insurance and limited-scope dental are reimbursed.
Employees, on the other hand, may benefit from this exclusion. This is because they are still entitled to premium tax credits (PTCs), which can help them afford individual health insurance through an exchange or marketplace.
Employers Eligible to Provide an EBHRA
Employers of any size can offer an EBHRA, but it must be combined with an employer-sponsored group health plan that offers the bare minimum of coverage (MEC).
Employees do not, however, have to enroll in the company-sponsored group health plan to take advantage of the HRA.
Nevertheless, this is fantastic news for employees who previously couldn't fund the group health plan premiums. Instead, these employees can acquire a short-term plan and refund the price using their EBHRA stipend.
Moreover, every employee who enrolls in the EBHRA but not the group health plan must get waivers of coverage.
Employers offering EBHRAs
Employers must make EBHRAs accessible to all "similarly situated individuals" on a consistent basis.
It simply means a company can provide an EBHRA to several employee divisions, but only if the classifications are based on a legitimate employment-based classification.
The following are some examples of employment-based classifications:
- Part-time vs. full-time
- Various geographical places
- Membership in a trade union
- Hiring Date
- Duration of service
- Various occupations, and
- Employee status (current vs. former)
- It is often not permitted to classify people depending on their health
Regarding Unused Funds
EBHRAs can allow unused funds to be rolled over at the conclusion of the plan year without affecting the amount of the next year's contribution.
Moreover, employers can also limit the amount that can be carried over and/or restrict how rolled-over funds can be used. When a rollover is permitted, the sum does not count toward the new plan year's annual maximum.
Alternatively, they can simply forbid rollovers and keep the unused funds. HRAs of all kinds are managed by the employer and are legally employer wallets; they do not go to the employees (unlike an HSA).
Possibility of Having Both EBHRA and HSA or an ICHRA
Employees are eligible to deposit to both an HSA and an EBHRA. However, in order to join, they must ensure that their health coverage is compliant with the HSA and that payments for the EBHRA do not affect their HSA eligibility.
It's also worth noting that an EBHRA and an individual coverage HRA (ICHRA) cannot be offered to the same class of employees. This is due to the fact that an ICHRA cannot be provided to any employees who are covered by a group health plan.
Key Points on GCHRA and EBHRA
Following we have provided a table that will help you understand about key points associated with GCHRA and EBHRA. Let’s learn:
KeyPoint | GCHRA | EBHRA |
Contribution Limit | It is the employer’s decision, without any limits | Employers’ decision, up to the annual limit |
Qualified Business | Employers who provide a group health plan are included. | Employers who provide a group health plan are included. |
Qualified/Eligible Employees | Employees who are covered by the company's group health insurance plan are qualified or eligible to participate. | Employees who are covered by a group health plan are eligible to join. |
Reimbursable Costs | Out-of-pocket expenses that are allowed by the employer. Premiums for health insurance are not included. | As determined by the employer, excluded perks and allowable out-of-pocket expenses. Individual health insurance premiums, group health plans, and Medicare premiums are not included. |
Tax Information | Employee reimbursements are tax-free and deductible for employer. PTCs are not commonly offered since employees must be registered in the group health plan. | Employee reimbursements are tax-free and deductible for the employer. Employees who opt out of the group health plan may be eligible for PTCs, although the amount available may be limited. |
Frequently Asked Questions (FAQs) on HRAs and EBHRAs
Following we have discussed some crucial questions that may cross your curious minds associated with HRAs and EBHRAs. Let’s discuss and learn:
Que 1: Is it possible to cash out my HRA?
Ans: No. HRA contributions that have not been utilized by the end of the year can usually be carried over to the next year, with the maximum amount that can be carried over as determined by the employer.
Que 2: Is it necessary for employees to enroll in the group health plan supplied by their company in order to engage in EBHRA?
Ans: Employees do not need to accept their employer's group health program in order to enroll in EBHRA. This is wonderful news for employees who may not be able to afford their group plan's premiums because they will be able to acquire a short-term plan and refund the amount with their EBHRA allowance.
Que 3: Is it possible for employees to have both an EBHRA and an HSA?
Ans: Employees can contribute to an HSA while also taking part in the EBHRA. To participate in the HSA, employees must guarantee that their health insurance is compliant with the HSA.
Que 4: What Are the Requirements for HRA Reimbursement?
Ans: Expenses that are considered "essential," such as a yearly check-up, medicines, or substance abuse treatment.
Que 5: What Is the Difference Between an HRA and an HSA?
Ans: A health reimbursement arrangement (HRA) is a benefit that reimburses employees in tax-free monies for some healthcare expenses and fees.
On the other hand, HSA or health savings account is tax-advantaged savings account for those who have a high-deductible health plan (HDHP) and want to save money for eligible medical expenses.
Que 6: About Enrolling in an HRA?
Ans: You'll find out what type of HRA is offered and how much your employer provides during open enrollment or when you enter the company.
However, if you don't sign up for the HRA during that open enrollment period, you'll have to queue until another open enrollment period.
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Final Takeaways
We've created a summary of key portions for your future reference now that we've reached the end of this extensive guide. So, let's get started:
- The HRA or health reimbursement arrangement is a type of employer-funded plan that an employer owns and provides to its employees.
- Employers can deduct the reimbursements they make under these programs from their taxes, while reimbursement payments received by employees are usually tax-free.
- An HRA is not the same as a bank account. Employees are unable to take out funds in advance and then utilize them to cover medical bills. Instead, they must first incur the expense before being paid.
- Employers can contribute up to $1,800 per year in the form of an Excepted Benefit HRA (EBHRA) to reimburse employees for out-of-pocket medical expenses. It further includes COBRA premiums, copays, deductibles, dental and vision coverage, and long-term care.
- The EBHRA covers deductibles, as well as COBRA continuing coverage, dental and vision insurance, short-term limited-duration insurance, and long-term care insurance.
- The SPD contains information on the plan as well as the employer, its agent(s), the employer's obligation, the plan administrator, employee responsibilities, and numerous required disclosures.
- Employers must provide the EBHRA in combination with a traditional group health plan; however, EBHRA participants are not required to enroll in the standard group health plan; they must only be offered coverage.
- Excepted benefits are health insurance plans or coverage that are exempt from certain regulations under the Affordable Care Act, such as dental, vision, and, in general, short-term medical insurance.
- Employers of any size can offer an EBHRA, but it must be combined with an employer-sponsored group health plan that offers the bare minimum of coverage (MEC).
- Employers can also limit the amount that can be carried over and/or restrict how rolled-over funds can be used. When a rollover is permitted, the sum does not count toward the new plan year's annual maximum.
- Employees are eligible to deposit to both an HSA and an EBHRA. However, in order to join, they must ensure that their health coverage is compliant with the HSA and that payments for the EBHRA do not affect their HSA eligibility.
- GCHRAs, also referred to as integrated HRAs, are another option for businesses of any size. They provide a tax-free reimbursement alternative for companies who desire more control over their healthcare spending, as long as employees have qualifying expenses.
- Employers can set their own regulations for minimum deductibles, cost-sharing, benefit explanations, and the expenses that the GCHRA will cover.
- Employees can contribute to an HSA while also taking part in the EBHRA. To participate in the HSA, employees must guarantee that their health insurance is compliant with the HSA.